One of the main and historically early form of world economic relations is an international trade, which in the XX century became the base of the world market formation. International trade - is a form of international economic relations, which reflects the import and export of goods and services and is based on the international division of labor. Having arisen in ancient times, world trade reached a significant scale and assumed the character of stable international commodity-money relations in the XVIII-XIX centuries. A powerful impulse of this process was the creation in a number of industrially more developed countries (England, Holland, and others) the large-scale machine production, based on a regular import of raw materials from economically
Classical international trade theory is a departure from mercantilism, which mainly introduces the idea that free trade could be mutually beneficial for trading countries. The notion that depends on absolute advantage was initially developed by Adam Smith, in his book titled “Wealth of Nations (1776)”. According to Smith, countries should produce goods only if they can produce them at a lower cost compared to any other country in the world. This idea briefly states that when a country is capable of producing a product at a lower cost than any other country, that country has an absolute advantage in the production of that good. This simple concept was revised by David Ricardo and then he developed a new notion namely the comparative advantage.
Research Question: Does the current Economic Globalization and Interdependence process help or hinder the development of all nations? Theory/Hypothesis/Abstract: Economic globalization is reinforced by the idea that states which integrate with the international economic exchange system will become a more progressive and modernized as a consequence. However this paper will argue that this general perception about development does not take into account that globalization may in fact keep poorer nations weak for the purpose of exploitation. There is a need for the current approach to be adjusted. The international division of labour, class distinction, and the domination of liberal economic theory under the current approach to globalization all serve the interests of the wealthy nations, promoting and supporting dominance and exploitation.
Heckscher-Ohlin Theory Comparative advantage ascends from differences in national factor endowments, such as land, labour, or capital, as opposite to Ricardo’s theory which stresses productivity. 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
[44,pp 242-3] The standard case for free trade is based on a number of assumptions and simplifications. Much of the literature ignores the macroeconomic context. For eg. Kaldor argues that the ricardian rationale for free trade is dependent on the assumptions of constant returns to scale. However, the existence of economies of scale in manufacturing means that a nation that is successfully competing in foreign trade can expect that the advantage of an expanding market will increase it competitiveness.
So, a more competitive economy is the one that is expected to grow more rapidly over the way to long term. The two dissimilar concepts of productive efficiency are: relative efficiency in manufacturing exportable goods and absolute point of production costs related to other countries. Relative efficiency doesn’t show competitiveness as a whole of different countries rather it clarify the paths of Global specialization in production whereas absolute production costs defined how successful countries are in global marketplace for individual goods [Irfan ul Haque
1. The Heckscher-Ohlin model is a mathematical model that evaluates international trade and focuses on predicting the patterns of economics and production based on the factor endowments of a trading country and the assumption that countries have the same technologies for production. The model states that countries should export their products that use their abundant and cheap factors and import products that use their scarce factors. Meanwhile, the Ricardian model of international trade describes the difference in comparative advantage based on technological difference. This model states that a country should specialize in producing and exporting products that they can produce more efficiently at a lower opportunity cost.
The Eclectic Paradigm of Dunning The eclectic theory is a combination of 3 different theories known as O-L-I (Direct foreign investment) developed by professor Dunning 1) “O” - Ownership Ownership is the intangible assets of a company that can be reassigned amoung transnational companies at a low rate which leads to higher incomes and reduced costs. Advantages: - Access to markets through trademarks because of monopoly advantages - Different kinds of innovations from the technology that will be introduced. - Economies of scale and better access to financial 2) “L” - Location: Location advantages are the main factors that determine who the host country will be for transnational companies activities. Advantages: -Economic Benefits of quantitative and qualitative factors of production, transportation cost, telecommunications and etc -Political benefits include similar government policies that affect FDI flows - Social benefits includes cultural diversity and distance between the host and home countries, cultural diversity 3) “I” - Internalisation When the first two conditions (Ownership and Condition) are met, the company will be profitable to use the advantages. (Dunning, 1973, 1980, 1988).
In later works Samuelson is of the opinion that the development of international trade leads not only to equalize the prices of goods and factors of production in different markets, but also to change the distribution of income across countries. In the literature, the above relationship is called is called the Stolper-Samuelson theorem. According to this theory: 1. There are two countries and the two products. 2.
This makes these international regimes essential in supporting a globilizing capitalist economy. We are made to understand international monetary regime as a universal global payment system (Tew, 2013, pp. 1945-52). This gives the relationship between any two currencies and dertemines the conventions and helps to smoothen the process of international trade. Looking at the international monetary regime, it is important to note the role played in globalization.