The paper 'Recent Developments in International Trade Theory" is an outstanding example of business coursework. International trade refers to the trade that results when citizens or companies of one country buy or/and sell from and to their counterparts from a different country (Krugman & Obstfeld 1992). This kind of relationship is necessitated by diversity, whereby countries will naturally be endowed to produce different products in quantities that they cannot consume. On the other hand, they require products which they either cannot manufacture or are very expensive to manufacture in comparison to another country and hence choose to import.
The patterns of trade are influenced by many factors and different theories attempt to explain these determinants. The practice of international trade is old and has undergone numerous transformations with time and age. This paper presents recent developments in the pattern of international trade. The concept of comparative advantage forms the basis of discussion. A number of models as formulated by various authors will be present today’ s rationale of countries to do business with one another. International trade theory provides explanations concerning the rationale of international trade and the benefits that accrue to countries when they engage in the same (Krugman & Obstfeld 1992).
In today’ s business context, the tone of international relations is bent primarily on free or liberal trade. Under this system, countries are to allow free of factors of productions from regions of their concentration to places where they are on demand. Capital, labour and raw materials are exchanged between countries with the prime aim of coming up with finished goods and services that can trade competitively in the international scene. Economists attempt to answer any questions under international trade theory regarding why countries trade with one another, whether it is beneficial to trade and what determines the direction of flow of goods and services between countries.
To present the ideology of international trade theory, economists use the concept of comparative advantage. This concept is based on buy low sell high. Comparative advantage theory compares the relative price differences of commodities between nations. The country with the lower price of a commodity is said to have a comparative advantage in that commodity. Going by the concept of buy low sell high, that country will choose to export that commodity in which it has a comparative advantage (Krugman & Obstfeld 1992).
This theorem explains why a country will choose to specialize in the production of one or a group of commodities and remain silent on others. It also explains why a country will opt to import commodities or which it has the potential to produce. The reasoning of comparative advantage assumes that every country must have a comparative advantage in some good. Other forces, such as environmental standards, exchange rate manipulations and labour standards that cause national differences in levels of factors that do not enter the market system are diluted by a focus on relative prices.
Prices of these factors adjust in general equilibrium such that each country will eventually have a competitive or absolute cost advantage in the good in which it has a comparative advantage (Deraniyagala & Fine 2003).
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