International Trade

International Trade Theories

Name

Institution

International Trade Theories

International trade entails the exchange of goods and/or services amongst nations. Such economic exchanges have taken place for several centuries and now, more than ever before, all countries are becoming an intrinsic part of the world economy. This has led to the increased usage of concepts such as spaceship earth and global village which reflect the fact that the modern marketplace is fundamentally international.

A myriad of theorists have come up with a host of theories over the years in a bid to explain why nations trade with one another and how they try to maximize their gains right from the mercantilism theory which was founded on the believe that countries ought to increase their gold and silver coffers by capitalizing on their exports and decreasing their imports developed in the sixteenth century, to Porter’s Theory developed in 1990s and whose foundation was on the belief that a country’s competitiveness is determined, to a great extent, by its ability to have new innovations and constant upgrading (Bradley, 2011).

Absolute Advantage

This theory was advanced by Adam Smith in 1776, as a challenge the mercantile theory of wealth of nations as determined by its gold and silver holdings. Although recent economic theorists have attempted to edit the original version of the theory, its fundamental assertion that nations have an advantage if they produce the goods or services that they are more efficient in when compared to other nations still prevails (Hill, 2013). The notion here is that rather than a nation struggling to produce goods that they may not know how or lack the resources to produce, they should focus on the production of the goods that they are savvy on and use the money they get from exporting the latter to buy the former from nations that are able to produce them efficiently. The implication is that every nation should identify it strengths and focus on producing the...