Classical, country-based international trade theories: Differences and how it evolve? 

International trade brings to light the exchanging of goods and services between countries. With that being the case, economists, researchers, and analysts study and debate the possibilities as well as the reasons why a country should be engaged in trading internationally. They based their arguments mainly on the theories that happened in the past. These international trade theories were the reasons why the pattern of trade exists and the factors that cause such. 

The pattern of trade includes the importing and exporting of goods and services between countries. With the emerge of this concept, consumers and countries are able to gain a variety of goods and services. Along with this pattern, countries will be able to generate efficiencies by focusing on the production of goods or services that they have the best. Thus, specialization is one of the basis of global trade, as few countries have enough production capacity to be completely self-sustaining. Moreover, trade theories also explained that the purpose of international trade is believed to be helpful in building strong relationships in order to reap mutual gains which eventually creates wealth and enables countries to become economically powerful. Furthermore, as time progressed, global trading has evolved and it brought changes into the modern economy and with that, it is fundamental to look back into the historical origin of trading and understand why these economists, researchers, and analysts came up with these arguments. Thus, international trade theories have two categories namely classical and modern. The first category is classical and is a country-based, and consists of the following:

Mercantilism. This is the earliest theory that has ever developed and contributed to the establishment of other economic theories. It is based on the idea that the nation’s or country’s wealth is determined by the accumulation or possessions of bullion or gold and silver. Moreover, it also emphasized that in trading, it must be favorable and this means that the value of exports must be greater than the imports. This may seem capitalistic however, it results in a trade surplus and they believe that this produces more wealth and makes the nation richer.  Through this protectionism strategy, countries gain way better from the increase of exportations. However, because of the restrictions in importations, this leads to hurting the other companies and consumers because of the higher prices of products and goods offered.

Absolute Advantage. This theory is developed by Adam Smith after he questioned the prior mercantile theory. It states that that the wealth of the nations should not be measured based on gold and silver instead through the ability of the nation to produce goods and services more efficiently than others. He also believed that the government should not intervene in the trading of countries. The concept of this theory is that the country can produce a greater quantity of goods or services using fewer inputs by specializing in what they are better at or have advantages compared to other countries. An example of a country that does have a clear absolute advantage is Saudi Arabia because it can produce oil more cheaply than any other nation. Moreover, through specialization, countries can generate efficiencies as well as production will be faster and better. Therefore, by encouraging trade, both countries will gain mutual benefits and the nation’s wealth; which should be determined based on the living standards of the people. 

Comparative Advantage. In this theory, David Ricardo introduces opportunity cost as a factor for analysis of relative productivity differences of goods and services. Opportunity cost is the amount of something that you give up when choosing one alternative over another. Thus, this theory explains that the countries may not produce efficiently than others, however, it can produce more efficiently than it does other goods. Therefore, a country does have a comparative advantage when they produce goods or services with lower opportunity costs while producing a greater quantity of outputs. 

Heckscher-Ohlin (Factor Proportions Theory). This is the theory that was proposed by the two Swedish economists, Eli Heckscher and Bertil Ohlin. They focused on how a country will be able to export the goods that a country has in abundance with and import those resources they need. Moreover, it requires factors of production namely land, labor, and capital to be able to efficiently and plentifully distribute the said resources. It also emphasizes the idea of supply and demand in terms of the cost of any factor, and explains that the factors that have a higher amount of supply relative to the demand will be cheaper; factors with higher demand relative to supply will be more expensive. Therefore, as countries have varying specialties and natural resources, countries should ideally export materials and resources of which they have an excess, while proportionally importing those resources that they were in short of. Thus, this theory explains how a nation should operate and trade when resources are imbalanced throughout the world.

Leontief Paradox. This analysis was done by the Russian-born American economist Wassily W. Leontief. He based his research analysis on the factor proportions theory and studied the US economy as the subject and noted that the US was abundant in capital and, therefore, should export more capital-intensive goods. However, his research using actual data showed the opposite: the United States was importing more capital-intensive goods. The results were self-contradicting to the purpose of the factor proportions theory statement, thus, when further studied by other economists and researchers, it seems that it is needed to be investigated and explained further in order to be proven or be well-founded.