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Classical International Trade Theories

Updated on February 3, 2010

 

International trade theories

Mercantilism

Its most political and accepted theory at international level that it suggests that a country should increase its reserves why exporting to other countries as if imports increases a country enhances its foreign reserves and get trade surplus and this can be achieved only by using different trade barriers

 

Absolute Advantage by Adam Smith in Capitalism free Market Economy

In 1776 he wrote a book named as Wealth of Nations in this; he says, like every, your country has some advantages in some products to produce, like today if we see, Japan in Technology, Pakistan as 3rd milk producer, France in Perfumes etc. So you should produce only those products in which you have absolute advantage and sell it to other countries and in return buy your requirements instead of making them

 

Competitive Advantage

This was given by Recardo which forces that a country may have absolute advantage in different products which it may produce more efficiently, where as on the other hand it would surely have competitive advantage in one product which other country can not produce more effectively and efficiently, like if America is having absolute advantage in both automobile and laptops, it should produce only that product which may cost it more cheaply in more quantity.

 

Factor Endowment

its simple that a country should focus on those productions for which it has factors, like china now a days is producing more cheaply because it has more labor as factor of production and those labors are used in producing different things. A country which is has land so it must use that land for agriculture purposes which indirectly says that a country should utilize its factors for such productive manners.

 

Product life cycle

A country produces a thing in cheaper prices and exports it to other country and it exports its technology which those products carry, later on importer country starts working on it and finds that it can produce the same product in less inputs

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    • Rizwan Amjed profile imageAUTHOR

      Rizwan Amjed 

      6 years ago

      Thank you All

    • profile image

      owolabi taofeeq 

      6 years ago

      i want 2 participate in dis.

    • Rizwan Amjed profile imageAUTHOR

      Rizwan Amjed 

      8 years ago

      Thanks nilum for liking it

    • nilum profile image

      nilum 

      8 years ago

      Thats a really nice hub, it helped me to know international trade patterns that why import export happens..

      Thanks to you !!!

      Keep it up buddy

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