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International trade theories explain the reasons behind the exchange of goods and services among nations and help understand the patterns of global trade. In International Business Management, these theories provide a framework for analysing why countries engage in international trade, how they gain competitive advantages, and how economic development influences their participation in the global marketplace. Classical and modern trade theories together explain the evolution of global trade patterns, particularly the rise of emerging economies such as India and China. Classical trade theories originated during the eighteenth and nineteenth centuries and mainly focused on differences in production efficiency and resource availability among countries. One of the earliest theories was the Mercantilism theory, which dominated European economic thinking from the sixteenth to eighteenth centuries. Mercantilists believed that a country’s wealth depended on accumulating precious metals through exports and limiting imports. Governments promoted exports and restricted foreign competition through tariffs and trade barriers. Although mercantilism is considered outdated today, some elements can still be observed in protectionist policies adopted by countries seeking to strengthen domestic industries. Adam Smith introduced the theory of Absolute Advantage in his famous work “The Wealth of Nations” in 1776. According to Smith, countries should specialise in producing goods in which they have an absolute cost advantage and trade with other nations. Specialisation increases efficiency and allows countries to benefit from international exchange. For example, China developed an absolute advantage in manufacturing industries due to its large labour force, infrastructure development, and production capabilities. This enabled China to become a major exporter of electronics, machinery, textiles, and consumer goods. David Ricardo developed the theory of Comparative Advantage, which remains one of the most important concepts in international _________ __________ __________ __________ ________.
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