Trade Theories to Enhance International Trade Essay

Download this Essay in word format (.doc)

Note: Sample below may appear distorted but all corresponding word document files contain proper formatting

Excerpt from Essay:

International Trade Theories

International trade may be classified as the trade of capital, goods, and services across international boundaries or areas. In many nations, such trade signifies a substantial share of the country's gross domestic product (GDP). While international trade continues to be present throughout a lot of significant research for trade history (see Silk Road, Amber Road), the fact remains that the over societal, economic and political importance for international trade continues to be increasing even further in recent decades (Samuelson, 2001).

Industrialization, modern and intricate transportation structures, globalization, the presence of multinational companies, and outsourcing are getting increased attention and thus having a significant effect on the international trade system. Growing international trade is vital towards the continuation and growth of globalization. Without international trade, nations could be restricted to the products or services created inside their own boundaries (Samuelson, 2001).

International trade is, in its theory and fundamentals, not the same as domestic trade because the incentive and also the behavior of businesses involved with a trade commitment don't change essentially or at the core irrespective of the trade being localized, across a border, across the seas or otherwise. The primary difference is the fact that international trade is usually more expensive than the costs normally associated with all domestic trades. This is because a trade across the boundary does typically inflict additional costs for example charges, time costs because of across the border delivery delays and charges connected with country variations for example language, the legislation or culture (Samuelson, 2001).

One more distinction between domestic and international trade is the fact that factors of production for example aspects like the capital and labor are usually more portable inside a country as opposed to across boundaries. Thus international trade is mainly limited to the exchange of products or services, and just, to a decreased degree, to the exchange of capital, labor or any other basic factors of production. Exchange of products or services may serve as an alternative to the exchange of factors of production (Samuelson, 2001).

Definition of key terms

Absolute Advantage

In financial aspects an economics terms, the key of absolute advantage refers back to the ability of the party (a person, or firm, or country) to create much more quality or quantity of a great product or service than rivals, while utilizing the same quantity of assets. Since absolute advantage is dependent upon an easy comparison of work productivities, it's quite impossible for any business to possess absolute advantage in anything; for this reason and the possibility of this situation, based on the principles of absolute advantage, no level of exchange of trade can take place amongst the different parties and businesses. The theory of absolute advantage may be compared with the idea of comparative advantage which refers back to the ability to make a particular proficient and successful product or service at a lesser opportunity pricing (Chang, 2008).

Comparative Advantage

In economics, what the law states of comparative advantage refers back to the capability of an entrepreneur, a business -- local or multinational, or perhaps a country to manufacture a specific category of a good or service in a decreasingly marginal and opportunity price over another. Even when one entity is much more proficient in producing and manufacturing certain products or services (absolute advantage in most goods) compared to each other, both entities or nations will still most likely attain success and profits by buying and selling with one another, i.e. In the long run, because they have differing efficiencies that they will be relatively proficient in (Deardorff, 2005).

Factor Endowment

When talking about the economics or financial aspects that structure a country, the concept of factor endowment is generally understood as the quantity of territory, employment, assets, and free/government/private enterprise that the country offers and may choose to manufacture. Nations having a large endowment of assets tend to be prosperous than those nations having a small endowment, if and when other aspects are equal. The introduction of structurally strong and successful institutions that can access as well as impartially allocate these assets, however, is essential for any nation to get the finest advantage of its factor endowment (Kenneth et al., 2000).

International Trade - India and china

India and china are undoubtedly huge emerging markets and financial systems. They're demographic titans that have become large economic forces prior to getting wealthy. They do record an overall decreased earnings per capita when compared to other countries like South America, Mexico or Russia, but have registered greater and steadier growth rates, which place them on the obvious rising trajectory. Besides these similar stats, facts and records, India and China do exhibit a stark difference in their economic constructs which can't be related simply to the decreased degree of growth and development of India, but additionally to various other factors and methods as well. India is a smaller presence In terms of being open and active in international trade but this degree of gap between the two countries might be, to an extent, an issue of the time of entrance for the two markets as well (Lemoine and Unal-Kesenci, 2007).

Their increase in international trade has produced two symmetric shocks, around the supply and also the demand sides. In the last ten years, the 2 nations when analyzed together have manage to increase their percentage of world exports of all manufactured products and services items in addition to their be percentage of world imports of the basic and primary goods and services (the increase was recorded to be from around 3% to around 10%). China's way to supply the manufactured goods/services/products, which at affordable prices coupled with China's and India's need for the production of energy and the extent of raw material, have led to a general change in relative world prices that has had a bad impact on both nations (Lemoine and Unal-Kesenci, 2007).

In a recent study, Lemoine and Unal-Kesenci (2007) assert the following about the emergence of India and China by stating that: "China and India have kept similar traditional specialization (textiles) and both have developed new outward-oriented sectors linked to new technology. Foreign firms, through their off-shoring and outsourcing strategy, have played a critical part in turning China into a global export platform for electronic products, and India into a global centre for computer and IT services. As low-cost suppliers of manufactured products and services, they now epitomize the threat of globalization for rich countries. Their growing merchandise trade is associated with widening deficits in related services (i.e. transport, insurance and royalties)" (Lemoine and Unal-Kesenci, 2007).

The growth experienced by China and India has additionally had an effect on the global capital flows as well. They've received large capital inflows from foreign traders which have mainly increased due to the availability of cheap labor as well as quickly growing domestic marketplaces. More lately, some of the most successful Chinese and Indian companies have strategized a method of global investment, to incrase their accessibility to the latest technology, as well as increase the spectrum for their marketplaces and secure their manufactured and traded products (Broadman 2006 Goldstein, 2007 UNCTAD, 2006).

The mixing of those two titans in to the world economy has additionally had indirect influences as well. Using their opening to move openly and strategically towards the global financial markets and global capital, several billion of employees (760 million of employees in China and 430 million employees in India) happen to be integrated with the international labor structures and constructs. It has transformed the total amount of difference recorded between capital and work on the global front and it has also resulted in the decreased demands on salaries within developed financial systems (Freeman, 2005). In China alone, employees within the manufacturing sector easily outnumber employees in the OECD nations.

Finally, the emergence of India and China has already established an effect on economic thought process and driven a hypothetical discussion concerning the interpretation of the constructs of the comparative advantage in our context of globalization. Researchers have contended that the developed countries (like the United States and the United Kingdom) are affected negatively in the long-term in terms of the competition they face from a growing economy once the latter encounters an immediate technological catch-up. Bhagwati, a renowned international economist, confesses this really is theoretically plausible though it doesn't relate really to our context (Bhagwati et al., 2004).


Researchers also assert that "The degree of openness is also a major difference between the two countries. India is much less open both to foreign trade and to foreign direct investment. The contrast can be ascribed to several factors" (Lemoine and Unal-Kesenci, 2007). These factors are also responsible for the overall input that International Monetary Fund (INF) and World Trade Organization (WTO) have had in the international trade growth for these two countries.

The very first aspect for the difference between the two is the time lag: China started to spread out in 1979 and India did not begin expanding…[continue]

Cite This Essay:

"Trade Theories To Enhance International Trade" (2012, September 23) Retrieved December 9, 2016, from

"Trade Theories To Enhance International Trade" 23 September 2012. Web.9 December. 2016. <>

"Trade Theories To Enhance International Trade", 23 September 2012, Accessed.9 December. 2016,

Other Documents Pertaining To This Topic

  • International Trade Participation

    regional international institutions, International Monetary Fund, World Bank, United Nations, World Trade Organization, a financial institution. Select countries apply traditional international trade theories, absolute advantage, comparative advantage, factor endowment, enhance participation international trade. International Trade Participation The interaction between countries is a complex process that is strongly influenced by economic, political, and cultural factors. The need for this interaction is based on the resources that can be provided with smaller efforts

  • International Relations Studies and Research Programs From

    International Relations Studies and research programs from inter-disciplinarity of sociology have proved that the society is essential to be protected. Social, political, economic and cultural aspects are evidently vital in promoting development and the improvement of life style, which eventually accounts for societal development. From previous projects, the society is a depiction of human life illuminating facets of social life to coax the modern world systems. Various theories have summed up

  • Trade Agreements and Negotiations on International Trade

    Trade Agreements and Negotiations on International Trade International Trade Trade is important to countries all around the world. International trade opens up job opportunities and also leads to development of economic activity in every region of the trading country. The trading countries must also ensure that traders, whether self-employed entrepreneur, corporate executive or pensioner must bear the responsibility of making sure that goods and services are transported efficiently to global markets.

  • International Trade Has High Importance in the

    International trade has high importance in the economic growth of the country. Even it is not only in benefit of the country's economy but there are number of benefits for the global organization and the overall world's economy as well. Without international trade, it was never possible to reach the success level at which the world is right now. An international trade is the major source of revenue for the country

  • International Trade and Open Economy Macroeconomics

    International Trade and Open Economy Microeconomics Why there is free trade between states in the United States but not necessary between countries Trade between states in the United States is not restricted as this may hurt the entire wider American economy. United States in a way restricts free trade between it and other countries for a number of reasons. To start us off, the United States government uses tools like tariffs and

  • International Trade Walmart International Trade

    The Uruguay round would designate that the WTO, through its primary role as a mediator, negotiator, and monitor of international trade policies and disputes, serves by design as a gatekeeper of international trade, offering the structural conditions and assembled authority to exact a legitimate level of authority over its member nations. A good example of how the WTO has strengthened the international governing community's ability to provide oversights for its member

  • International Trade & Investment Good

    185). Components for these products may be manufactured and put together in branches in various countries throughout the world. Thailand, Malaysia, Singapore, and Hong Kong were involved in the earliest types of production sharing, which included assembling electronic components manufactured in other countries. Production sharing, one World Bank study determined, currently contributes to approximately 30% of manufacturers' total global trade. Foreign affiliates' international exports approach over 7% of global

Read Full Essay
Copyright 2016 . All Rights Reserved