Neoclassical Trade Theory Analysis

According to Adam Smith 1776) in…... a country has an absolute advantage in producing the product when it is more efficient in making that product than any other country. If two countries specialise in producing different products and trade amongst themselves, both these countries will have more of both products available to them for consumption (in which each has an absolute advantage)

2.2. Neoclassical Trade theory

This is also known as Comparative Advantage. (David Ricardo1817) stated that if one country has an absolute advantage in producing two products over another country, trading with that other country will still yield more output for both countries than if the more efficient producer did everything for themselves. The country with

Heckscher-Ohlin Theory

Comparative advantage comes up from differences in national factor endowments, such as land, labour, or capital, as opposite to Neoclassical trade theory which stresses productivity of products being produced for consumption. This theory suggest that the country should focus on exporting products using its scarce resources and brings across a free trade principle where goods will be moving freely without any trade barriers implying that this would make flow of resources in and out more demand and more supply will increase the country’s economy(Eli Heckscher 1919 &Bertil Ohlin1933).

2.4. New Trade Theory

Achievement of economies of in 1970’s scale, trade can increase the different sorts of goods available for consumption and those goods can be in a decreased affordable price. Further, the ability to capture economies of scale before anyone else is an important first-mover advantage. Nations may benefit from trade even when they do not differ in resource endowments or technology. This theory is not at risks with Comparative Advantage, since it identifies first mover advantage as an important source of comparative advantage.

2.5. National Competitive Advantage – Porter’s

Four attributes answer this by stating that the, Factor endowments focus on basic factors such as natural resources, climate change, location geographically, demographics. The second one is advanced factors such as infrastructure, communication, urbane, skilled labour, research facilities, and technological skills. Third one will be advanced factors are a product of investment by individuals, companies, and governments. Porter argues that for competitive advantage advanced factors are the most significant. Lastly demand conditions look at customer need and demand which must be produced by companies will have to produce innovative, high quality products early, this way competitive advantage will be met. Related and supporting industries, if suppliers industries exist in the country that are themselves internationally competitive, this can result in competitive advantage in the new industry, firm strategy, structure. Different nations have different management rule and regulations, which can either destroy or build its competitive advantage. If there is a solid internal competition, in this way it creates improved efficiency, making industries better international