Theories Of International Trade

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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