International Trade Economic Activity Of Nations

International trade is important to the overall economic activity of nations, including the growth and domestics’ production. According to the United Nations Conference on Trade and Development (UNCTAD) and WTO, international trade has grown remarkably in recent decades as shown in figure 1 and 2. It can be seen that the growth of trade has led into the rapid economic growth in some countries. The reasons of rapid growth in world trade is due to the reduction of trade barriers at global and regional level. The country also can gain from trade for some reasons. Firstly, trading leads the country to produce and consume at prices which differ from those international market does, so if the price in international market is more expensive,†¦show more content†¦He argued that trade can be beneficial because each country has a differentiation about the cost of producing different goods. Smith determined that the dissimilarities of the cost of producing caused by the differences in efficiencies of labor in each country. Smith emphasized that the theory of labor efficiencies lead into the absolute advantage of producing some goods. He argued that each country will have gain if only they exchange its products which have an absolute advantage comparing with other countries. However, his theory seems not very deep (Södersten and Reed, 1994). Then, Ricardo was the person who completed Smith’s theory by proposing the theory of comparative advantage. Ricardo argues that Smith’s theory is not suitable for a country which is more productive than other countries in all lines. Ricardo define that all countries have same opportunities to pursue a benefit from trade as long as the country is not equally less productive in all lines (Södersten and Reed, 1994). In Ricardo’s model, a country has a comparative advantage in producing a good if the opportunity cost of producing the good is lower at home than in host country, but to know the country has a comparative advantage in one good, there must be at least two countries and two goods (Södersten and Reed, 1994). But, there are some criticisms on the theory of comparative advantage. Firstly, this