International Trade Theories

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Mind Map on International Trade Theories, created by Omar Blanco on 20/10/2017.
Omar Blanco
Mind Map by Omar Blanco, updated more than 1 year ago
Omar Blanco
Created by Omar Blanco almost 7 years ago
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International Trade Theories
  1. Theory of Absolute Advantage
    1. Adam Smith a classic economist said that the basis of international trade falls along the division of absolute advantage, the goods or services in wich a country is more efficent or can produce more than any other country or can produce the same amount with other country using fewer resources.
    2. Theory of Comparative Advantage
      1. if two nations (regions or individuals) have different opportunity costs in producing a good or service, the nation with the lowest opportunity cost has a comparative advantage in that particular good or service.
      2. The gain from trades
        1. Arising from the law of comparative advantage as stated earlier, countries would benefit from trade with a rise in world output without additional factor inputs when countries specialize in the production of those goods in which their opportunity cost is lower.
        2. Competitive advantage of Nations
          1. Michael Porter developed this theory which attempt to expain why particular nations achieve International success in particular industries. Porter states that "National prosperity is created, not inherited".
          2. The Theory of factor proportions
            1. Also know as heckscher-Onlin Theory. The theory was based on a more modern concept of production, one that raised capital to the same level of importance as labor. The markets for the inputs and the outputs are perfectly competitive and also the increase in the production of a product can experience a dimishing returns.
            2. The rent for suplus Theory
              1. According to Adam Smith, a country carries out thar surplus part of the produce of their land and labor for which may satisfy a part of their wants, and increase their enjoyment. I.T. does not necessarily reallocated factors of production but enables the output of the suplus resources to be used to meet foreign demand.
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