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Theories of International Trade Essay

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Below is an essay on "Theories of International Trade" from Anti Essays, your source for research papers, essays, and term paper examples.

Mercantilism (1500~1800)
• Gold and silver are the measures of wealth and power
• Public policy implications of mercantilism influence a favorable trade balance: Keep production costs low (by using cheap labor of women, children, slaves); tax imports; wage an offensive in export markets
• International trade is a zero-sum game and the seed of war among nations
• Governments are outward, controlled and competitive; thus, the expansion of England, France, Spain and Portugal
Classical: Absolute Advantage (Adam Smith 1776)
• Trade is an unregulated, laissez-faire activity which had significance in the division of labor; an unfettered market brought about social harmony and public benefit
• Nations trade those goods for which they have an absolute advantage, which is a low-cost advantage based on its natural endowments
Say’s Law (Jean Baptiste Say 1803)
• Supply creates its own demand
• Creation of full employment ensured the full capacity loading of existing plants; imports, however cheap, can do no harm to the domestic situation (although generally discredited, this may hold true in areas of high technology)
Classical: Comparative Advantage (David Ricardo 1817)
• A country should specialize in the production and export of those goods and services that it can produce relatively more efficiently than others (using its land, raw materials, management and skilled labor, capital, research); and import those in which it has a comparative disadvantage
• “Classic economic science”: exports are profitable for exporters, but the country as a whole benefits from imports through consumption; hence, free markets
Terms of Trade (John Stuart Mill 1848)
• Reciprocal demand theorem: price paid to foreigners for a good vis-à-vis price charged to foreigners for exported goods – “terms of trade”
• “Country offer curve”: price is low if demand is low, high if demand is high

Heckscher-Ohlin (H-O) Theory (Eli Heckscher & Bertil Ohlin 1919)

• “Modern theory of...

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