In order to gain knowledge about the international trade history, you should be familiarized with the classical international trade theories. General speaking, the international trade is considered the processes that have been undertaken among the states including the processes for exchanging products, services and the whole production elements, with the aim of achieving their mutual benefits. And that's according to rules that regulate the process of exports, imports exchange, the international movements of capitals, and the transportation of their owners among these states. In this regard, the World Trade Organization, and both the International Monetary Fund and the World Bank have been established for the completion of monetary regulatory triangle.
Objectives and target group
What are the most prominent Classical International Trade Theories? The economists in all states have divided into two groups. As for the first group, it believes that increasing the growth rate and raising the welfare level are associated with the liberalization of foreign trade; yet, this growth is related to certain terms. Meanwhile, the second group believes that the liberalization of foreign trade under the circumstances of states division into advanced and developing states will lead to the transformation of the economic surpluses of the weak states to the advanced ones through polarization mechanism. As a consequence, several classical international trade theories have emerged, which can be summarized in the rule that the state power is measured by how money it possesses, and there's no way of getting it only through the international trade. Accordingly, the state should be involved in all the spheres of economic life regardless of the restrictions and the obstacles faced by the international trade.
Based on that, the classical international trade theories have been divided into the following categories:
Absolute Utility Theory: It's among the oldestinternational trade theories. This theory is based on the trading exchange that depends on the production of commodities that are characteristics of a certain state with unlimited advantages. Yet in reality, it's can't be achieved due to the existence of a lot of developing and weak states that lack this utility in producing any commodity.
Relative Utility Theory:
This theory defends the international specialization and the trade freedom, in addition to the removal of restrictions on the international exchange. Yet, it's also difficult to achieve this theory due to the difficulty in transforming the production elements among the states. Where, the rise in the costs of transformation processes and the technological changes lead to the lack of this relative utility in producing the commodity that a certain state enjoys.
Reciprocal Demand Theory:
This theory of the classical international trade theories has emerged in the middle of 19th century. Such theory has refuted all theories that have been approved previously, and focused much more on the offer. As a result, the reciprocal demand theory came to focus further on the productive capacity among the states as a replacement for production costs. In addition, the concept of the international barter ratio and the extent of demand significance in determining the ratio of international exchange have expanded. Therefore, the developing states can gain additional benefits from the advanced states due to the higher standard of their income and the hugeness of their demand. Yet in reality, the gains of the advanced and major companies are significantly greater compared to the developing states.
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