theories of international trade ppt

Different International Trade Theories

 The contemporary theory of international trade is a growth of the general stability theory of value. This theory was put forward by Bertil Ohlin, a Swedish economist, and it's replaced the traditional comparative cost theory. As individuals specialize in economic action by which they've comparative benefits, similarly states concentrate on the creation of specific commodity by which they've comparative benefit on the basis of factor endowments. As differences in individual capacities are the main reason for exchange between people, similarly differences in variable costs is the main reason for international trade. Bertil Ohlin thus extends the investigation that's applicable to one market to the conclusion of values globally i.e. 

Exchange between different countries. Thus, Ohlin observes International trade is, but a particular instance of inter neighborhood or inter regional trade. Therefore, based on Ohlin, there is no requirement to have different theory of international trade. He says the same basic principle holds good of all trade, while it's internal trade or international trade. The classical theory of relative cost is based on the premise of relative immobility of the factors of creation as between different nations. 

However, Ohlin points out that this immobility will be located even in different areas of the same nation. Based on Ohlin, the immediate cause of global trade is the distinction in commodity costs which in turn is a result of the differences in factor prices. Goods are purchased because it cheaper to get them from outside the country. The institution of the rate of trade between the two nations facilitates the comparison involving the commodity rates prevailing in the two nations. 

Therefore, in Ohlins opinion there are no basic differences, but only quantitative differences in between inter regional and international trade. Ohlins concept represents a departure from the classical concept and marks a great improvement on it. Gain from International Trade: The profit from international trade depends upon the Terms of Trade i.e., the speed at which the goods of one nation are traded for the goods of the other nation. At these example in these above section, in nations A and B, creation with equal units of work and capital will be! A20 tooth brushes and 20 kg of sugar. 

B15 tooth brushes and 10 kg. Of sugar. Total creation in A and B = 35 tooth brushes and 30 kg. Of sugar. But if they concentrate, A will use both units of effective power for sugar and B for tooth brushes. A will consequently produce with 2 units of effective power40 kg. Of sugar. B will produce with 2 units of effective power30 tooth brushes. Comparing these two positions, we find that with specialty, there's a gain of 10 kg. Of sugar and a loss of 5 tooth brushes on these whole. Referring back to our equation, we see that 10 kg.

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