International trade and the reasons for its existence among nations

Trade between nations and their theories

This post can be read in Portuguese

The commercialization of products between nations is related to issues of economic growth and development in relation to the concept of economy, involving the formation, accumulation, distribution and consumption of wealth produced. The existence of commercial activities between nations have admitted the existence of specialization in production driven by the division of labor at the international level and the natural characteristics of that nations have to exchange the goods produced by each one which can not produce in order to extract rents.

David Ricardo wrote a major work on the theory of surplus production and his formation, accumulation, distribution and consumption. The purpose of his work was the theory of value, due to be admitted that an amount of labor expended in the production of goods and assets, and allocation and distribution among classes of landowners, landlords, capitalists and workers.

Adam Smith became interested in the laws governing the formation, accumulation, distribution and consumption of wealth produced, adopted by the classical flow to set the economy. Adam Smith believed that a nation would gain advantages in international trade, it was more efficient production with less labor or produce a particular commodity. Later, David Ricardo developed his ideas by building a theory in which the comparative costs involved in producing goods. The theory of absolute advantage of Smith led to the theory of comparative advantage of Ricardo believed that commerce would be advantageous to both nations even if a particular commodity produced domestically to higher costs, since the terms of productivity among the nations involved were different .

The above theory, however, present separately insufficient to explain the presence and intensity of trade between countries. Both the absolute advantage of Smith and Ricardo’s comparative advantage is needed to explain the nature of international trade. Smith, Ricardo and Heckscher-Ohlin alone insert factors of production as essential to his theories, which means that it, in a way the existence of certain productivity in the production of goods and services.

The theory of competitive advantage Porter (1989) uses a microeconomic approach to competitiveness to explain the economic performance of nations on the search for insertion in international trade. According to his theory, what motivates trade between nations is the existence of certain diamond (1) in which they are the reasons for the existence of these exchanges with economic benefits for the nations involved. The diamond is the condition under which it regulates the conditions of competition. He is entirely dependent on the structure of the internal market to the headquarters of the companies or industries and the existence of related or support industries. Success in international trade is in interdependent attributes, forming a system of forces acting reciprocally to shape the competitive environment for domestic enterprises, becoming (2) decisive competitive advantages. For the theory of competitive advantage, not only the factors of production are important, but also the market conditions and its structure, strategies and the existence of companies and support industries.

Given the importance that international trade reached and given the level of trade is currently being practiced by the nations because of economic openings resulting set of economic models based on the free movement of goods and services, international trade theories aim to explain what determines the existence of trade between nations as well as address what benefits they bring. Theories of international trade seek to prove that trade intensity is based on the relative difference between the factors of production for each nation involved, where each one individually seeks to produce the product for which production factor is more abundant, meaning a commercialization of abundant and domestic factors existing by scarce factors.

Unlike the intra-industry trade model discussed in the 80 and explained by the implications of economies of scale and monopolistic competition of the neoclassical school, the international trade is explained by the differences between the nations involved. The theory of absolute advantages, Smith claims to be the absolute cost of production, the comparative advantage of Ricardo, the difference in costs, the Heckscher-Ohlin, the differences among nations regarding the relative endowment of factors of production, and the Porter, the existence of a diamond conducive to national competition that enables industry to pursue cross-border activities.

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1 See Porter, 1989, p. 205.

2 The determinants of national advantage, according to Porter, are present on the following attributes that shape the environment in which firms compete: a) conditions of factors that determine the country’s position in factors of production such as skilled labor and infrastructure b) demand conditions, which determine the nature of domestic demand for products and services from business and industry; c) industry and related businesses and support activities that can share the value chain – sales structure and distribution channels etc.. d) strategy, structure and rivalry between firms, which govern the way companies in the country are created, organized and directed, in addition to the competitive nature inside.

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