Theories Of International Trade

September 27th, 2008 Comments off
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International trade can be defined as the exchange of goods and services across international boundaries.

The theories of International trade can be classified into two main categories:

Country-based Theories

  • View trade in a macro perspective from the point of view of a country or nation and focus on trading phenomenon, particularly exports and imports
  • Are international trade theories that discus the evolvement since the 16th century.
  • Consists of the following theories:

·Mercantilism Theory

·Absolute Theory Advantage

·Comparative Advantage


Firm-based Theories:

  • Theories developed from classical country-based theories and supported with empirical research
  • Attempt to explain business phenomena related to international trade.
  • Consists of the following theories:

·Country Similiarity

·Product Life Cycle

·Porter’s Diamond Theory


  • Both Country-based and Firm-based theories though differences in perspective, they are interlinked and complement each other.

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