A critique of modern theories of trade (original) (raw)

International Trade with Classical and Contemporary Theories

Over its two hundred-year history, international trade theory witnessed increasing role of knowledge. Following classical theories of Smith (1776), and Ricardo (1817), based solely on labor as an element of cost, neoclassical contributions made it possible to take capital and other production factors into account through the concept of opportunity cost, undermining knowledge. Even the modern trade theories of Heckscher-Ohlin-Samuelson used two-factor models including just labor and capital. As of 1960s, parallel to the debate over Leontief Paradox, new theories of international trade began to cover knowledge and related concepts like skilled labor, technology gap, product cycle, etc. According to theories, how and who can trade with whom, we will try to explain this situation in this study.

Revisiting The International Trade Theories

isara solutions, 2021

This paper provides a comprehensive examination of diverse trade theories that have shaped international trade. The analysis spans traditional theories such as mercantilism, absolute advantage, and comparative advantage, highlighting their significant principles and criticism. Moving beyond classical paradigms, the paper delves into neoclassical theories, emphasizing the role of factor endowments, factor proportions, and the Heckscher-Ohlin model in explaining patterns of trade. The paper further explores modern trade theories, including the New Trade Theory and the Strategic Trade Policy. These perspectives elucidate the role of economies of scale, imperfect competition, and government intervention in shaping trade dynamics. Additionally, the paper discusses the rising relevance of global value chains and their impact on international trade patterns. Incorporating recent developments in economic thought, the analysis extends to theories addressing non-traditional aspects of trade, such as the New Economic Geography and the Gravity Model. These frameworks offer insights into the spatial distribution of economic activities and the gravitational forces influencing trade flows between nations.

Implications for the Development of Trade Theory

2001

The development of capitalism has reached a new historical phase, in which world trade is dictated by foreign direct investment (FDI). In the 19th century, transactions be-tween countries were mainly conducted in goods, to which portfolio investment was added in the century’s closing years. FDI gained importance in the 20th century, par-ticularly after the 1960s, due to worldwide operational expansion by multinational cor-porations. While trade in goods maintains its importance, it is now under constraints presented by FDI. This shift in the structure of interna-tional transactions is reflected in the litera-

A Survey of the Evolution of International Trade Theories

2020

The purpose of the paper is to give emphasis to the evolution of international trade theories and their application among nations. A review of the literature method was applied to review the evolution of different scholars’ contributions in the area of international trade. Over a period of time, the development in theories of international trade has gone significant changes. While classical and neo-classical trade theories remain valid new trade models have important insights to describe and seem to a better explanation of the present global trade patterns in the dynamic world.

Advanced international trade: theory and evidence

Journal of International Economics, 2005

Given how relentlessly empirical trade has become, it has long been a puzzle to me that, until now, there was no text book at the graduate level which taught trade as an empirical area. Feenstra's offering provides the much-needed blend of theory, and empirical work inspired by the theory, required for a deep appreciation of trade. The material is covered at a graduate level, but without being unnecessarily nerdy. The exposition is very fine indeed, making the book surprisingly easy to read for a textbook. It is up-to-date and one hopes that there will be future editions to ensure that it remains this way. This book is a must have for anyone with any interest in International Trade.

Towards the Importance of Theories of Trade as Part of Trade Science

Studia commercialia Bratislavensia, 2012

Theory of trade is a name dealing with trade as a scientific discipline, which is made up of a set of generalised knowledge of trade, of laws determining its essence and operation. This scientific discipline also includes the knowledge of the origin of the relations, operation of these relations, and their means and tools in trade. Theory of trade is a summary of numerous interrelated and partial theories of trade, which are based on the pillars of general economic theory and general trade theory. The aim of the paper is to highlight the importance of some of these theories with focus on their historical retrospective as well as to evaluate to what extent each of these theories is justified.

International Trade Theory and Policy: A Review of the Literature

SSRN Electronic Journal, 2000

This paper provides a survey of the literature on trade theory, from the classical example of comparative advantage to the New Trade theories currently used by many advanced countries to direct industrial policy and trade. An account is provided of the neo-classical brand of reciprocal demand and resource endowment theories, along with their usual empirical verifications and logical critiques. A useful supplement is provided in terms of Staffan Linder's theory of "overlapping demand," which provides an explanation of trade structure in terms of aggregate demand. Attention is drawn to new developments in trade theory, with strategic trade providing inputs to industrial policy. Issues relating to trade, growth, and development are dealt with separately, supplemented by an account of the neo-Marxist versions of trade and underdevelopment.

LITERATURE REVIEW ON THEORIES OF INTERNATIONAL TRADE AND POLICIES BEHIND MODERN WORLD TRADE

Journal of Indonesian Applied Economics, 2023

The essay aims to critically examine different theories proposed in the literature on international trade. Design/methodology/approach The essay is based on theoretical literature on the theories of international trade and working policies behind modern world trade globally Findings The essay discusses traditional international trade theories, mercantilist patterns, simplified models, new trade theories, strategic trade policies by advanced countries, FDI and technology role, and trade's impact on growth. It also discusses 21st-century theories, advocating for models that incorporate income inequality, political strategies, and real-world factors, and calls for models that incorporate income inequality and other real-world factors. Research limitations/implications The essay deals with only theoretical literature on international trade theories and policies. Findings and interpretation are subject to the theoretical development of international trade Originality/value The essay provided a critical explanation of international trade theories and tried to explain the paradigm shift in the theoretical framework of international trade.

Changing Paradigm in Trade Theories: A Review and Future Research Agenda

Indian Journal of Science and Technology, 2016

Objectives: The objectives of the study were to understand the evolution of trade theories and their application across nations over a period of time and to provide future direction of research for international trade. Methods/Statistical Analysis: To meet the objectives, the study undertook a comprehensive review of literature to bring together works of different researchers in the area of international trade. It summarizes the past theories and applications with the research advancements over the years. Findings: The study finds that over the years, research in international trade has evolved with new forms of models coming into existence. Many trade theories like absolute advantage, comparative advantage, factor endowment, factor price equalization, gravity model etc. have emerged and applied. At the same time, the trade environment across the developed and developing countries has metamorphosed with the advent of World Trade Organization and multiple trade blocs. Several factors have significantly gained importance, thus leading to a need of new dimensions in trade research. Conclusion/Improvements: The study proposes development of trade models which could incorporate pace of technological development and innovation, economic shocks like financial crisis, Brexit etc. and changes in global value chains. It also highlights the importance of future research in trade in services.