Question

Discuss international trade theory, political economy, and regional integration. In 250 words

Answer 1

International trade theory refers to the different approaches taken for the international trade, the basis for pursuing international trade and its impact upon the welfare of people. There are different approaches to the international trade theory. The first approach is of Adam Smith model that proposes that any country with absolute advantage in producing goods, go on to pursue international trade. In contrast to it, Recardian model proposes that it is the comparative advantage that makes nations to form international trade. Another model is H-O model that relies on factors abundance. It means that any nation with a particular factor abundance, are going to produce goods specialized by that factor and export to the other nations. Besides, it is the Porters national competitive advantage that evaluates each country on the basis of specific factors before doing international trade. In contrast to it international trade theory, political economy says about the type of economic structure that is adopted by the governments, inspired by different political philosophies. The first such political economy is market driven or capitalist, second structure is socialist or command economic structure and third one is mixed economic structure. Nations willing to pursue market based economic structure, are going to involve more in international trade. It makes nations to come for regional integrations as a part of advanced stage of international trade. For example, USA, Canada and Mexico have formed NAFTA as regional integration. EU is another example of regional integration that facilitate international trade. These integrations are the proof of facilitation of international trade and globalization among the market driven economic structure.