International Trade Theories And Trade Theory Essay examples

3207 Words Dec 13th, 2016 13 Pages
International trade theories explain international trade patterns. Academics see trade as the interdependence of states through the exchange of capital, goods, and services. International trade has existed for thousands of years in the world. Its economic, political and social influence in the world has begun rise. However, new trade theories include Porter 's diamond national competitive advantage which focuses on modern trade concept. This paper will discuss Porter 's diamond national competitive advantage and the extent to which their link to the new trade theories contrast with the neoclassical view of trade. The author will then discuss how government policies could influence trade pattern.
Adam smith criticised mercantilist assumption by saying that trade is a zero sum game. Furthermore, smith argued that countries are different in their ability when it comes to efficient production of goods which the country have an absolute advantage. Evidently, Smith maintain that Countries should specialise in the production of goods they have more absolute advantage. Thus David Ricardo theory of comparative advantage argued with that smith theory of absolute advantage make sense when he rightly said countries should specialise in the production of goods it has more absolute advantage. Grimwade (2000) Hecksher and Ohlin observe that comparative advantage emerge from different factors endowment. Such as Land, capital and labour intensive. Also Heckscher and Ohlin theory…

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