For a world in which international trade would be based only on the differences featured in the Heckscher-Ohlin theory, the shift from no trade to free trade is like a zero-sum game." Do you agree or disagree? Why?
The Ricardian model emphasizes on theory of comparative advantage, viewed to be the most important concept in international trade theory. In a Ricardian model, countries specialize in producing what they produce best.
The Heckscher-Ohlin theory states that countries should produce and export goods that require resources (factors) that are abundant and import goods that require resources in short supply.
The latter theory was an alternative to the former model of comparative advantage. However, Heckscher-Ohlin did not provide accuracy in its forecasts. Despite that it did present a remarkable solution from the theoretical point of view by adopting neoclassical price mechanism into the International Trade Theory.
It may be borne in mind that 'demand plays a pivotal role so far the determination of equilibrium composition of output is concerned'.© BrainMass Inc. brainmass.com March 21, 2019, 11:24 pm ad1c9bdddf
International trade, in simple terms, may be defined as trade or business between two nations not limited by national borders and boundaries.
The difference between domestic and international trade is that the latter is more costly due to tariffs, time costs, transportation, legal and cultural systems.
Rise and decline in the values of currencies of countries involved in trade badly affect the traders. It creates trade imbalances which have to be settled by the respective governments of both countries. Movement of foreign exchange rate greatly affects international trade.