Accumulated wealth is traditionally measured in terms of gold, as earlier gold and silver were considered the currency of international trade. Firms that enhance their internal economies of scale can decrease their price and monopolize the industry, creating imperfect market competition. Therefore, it is also used in international marketing.
In turn, the county would lose its competitive edge in terms of price. Today, international trade is shifting from traditional agro-products to industrial products and services, especially in developing countries like India.
Alternatively, the UK can employ its entire resources i. Such a similarity leads to enhanced trade between the two developed countries.
Another advantage is that it maintains a constant level of protection for domestic producers during seasons when prices are changing Carbaugh, As indicated in Table 2.
The theory helps explain the trade patterns when markets are not perfectly competitive or when the economies of scale are achieved by the production of specific products.
Such economies of scale may not be necessarily linked to the differences in factor endowment between the trading partners.
Comparative advantage may be defined as the inability of a nation to produce a good more efficiently than other nations, but its ability to produce that good more efficiently compared to the other good.
The trade patterns of a country are not a static phenomenon; rather these are dynamic in nature. National governments imposed restrictions on imports through tariffs and quotas and promoted exports by subsidizing production.
This mass market also facilitates the producers based in these countries to achieve cost-efficiency, which enables them to become internationally competitive. Countries differ widely in terms of the products and services traded.
Thus, international trade becomes a zero-sum game. Thus, both countries can mutually gain from trading, as the total output is enhanced Table 2. Introduction to Theories of International Trade 2. After reading this essay you will learn about: Thus, it is the economies of scope that assists in achieving the economies of scale by expanding into international markets.
On the other hand a compound tariff is expressed as a combination of ad valorem and specific tariffs. Countries also gain from trade by employing their resources for the production of goods in which they are relatively more efficient.
This strategy was guided by their keenness to contain imports and promote domestic production even at the cost of efficiency and higher production costs. Under this theory, accumulation of wealth takes place at the cost of another trading partner.
The production and export of more than one product often have a synergistic effect on developing the overall efficiency levels. Theory of Absolute Advantage 4.
These resources may be created or inherited, which include human resources, capital resources, physical infrastructure, administrative infrastructure, information infrastructure, scientific and technological infrastructure, and natural resources. They also facilitate in understanding the basic reasons behind the evolution of a country as a supply base or market for specific products.
The Balassa Index is often used as a useful tool to measure revealed comparative advantage RCA that measures the relative trade performance of individual countries in particular commodities.
A Dual, General Equilibrium Approach. In the system of mixed economy with protectionist and monopolistic regulations, the intensity of competition was almost missing in major industrial sectors.The third essay proposes an alternative test of the monopolistic competition model of international trade that implies a positive correlation between the volume of trade and the similarity among trading countries in economic size.
The trade theories provide a conceptual base for international trade and shifts in trade patterns. This article brings out the significance of developing a conceptual understanding of the trade theories as it deals with the fundamental issues, such as why international trade takes place, trade partners, shifts in trade patterns, and.
- Introduction to International trade International trade is the exchange of capital, goods, and services across international borders or territories or in other words is the process. This essay will provide a brief overview of international trade in the modern era; more particularly, this essay will describe the common methods for promoting international trade, the relationship between international trade and world output, the broad patterns of world trade, and discuss the significance of world trade for the United States of.
International Trade is that the exchanging method of goods and services across the international border. Inthe worth of international tread achieved 19 trillion (US) dollars that is about 30% of the world GDP.
This essay will outline and discuss the current nature and pattern of world trade in contrast to international trade theories.
It will attempt to justify whether these trade theories are able to explain and predict the causes of current trade patterns and whether the assumptions fit the scale of the world economy.Download