International Trade Theory

Topics: International trade, Economics, Comparative advantage Pages: 2 (668 words) Published: November 27, 2010
International trade theory explains the concept of the international trade and distributions of the gains from the trade. The theory highlights the necessity and importance of the trade. International Trade theory highlights the different models of international trade, that have been created to define the diverse ideas of exchange of goods and services across the global boundaries. The theory has been changed frequently , but the major objective of the theory is to gain maximum gain from the profit in the business. International trade theory is crucial to the continuance to the globalization .It plays an important role in global networking , without international trade theory , world would be limited within its own boundary. International trade theory is not only essential for the economists but also for the people who wants to understand the mechanism of the globalization and relations among nations .It provides the criteria of the international trade patterns , and interactions of the trade and the economic growth. There are different theories regarding the international trade , David Ricardo is the creator of the classical theory of the international trade . The Ricardian theory holds that a difference in comparative costs of a production is the necessary condition for the existence of international trade. According to this theory Exchange of goods between two countries would be based on this principle of comparative advantage, each exchanging goods that they produce the best . Technological differences between the countries determine international division of labor and consumption and trade patterns . It says trade is beneficial to the all participating countries. The Ricardian model and the Hecksher Ohlin model are two basic models of trade and production. In the early 1900s an international trade theory called factor proportions theory emerged by two Swedish economists, Eli Heckscher and Bertil Ohlin. This theory is also called the Heckscher-Ohlin...
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