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:
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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
·Heckscher-Ohlin
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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
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Note:
- Both Country-based and Firm-based theories though differences in perspective, they are interlinked and complement each other.
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