1.2 International Trade Theory

International Trade is paradoxical in that it brings countries together, and often for their mutual benefit, while at the same time reinforcing competition between them. International trade not only results in increased efficiency but also allows countries to participate in a global economy, encouraging the opportunity of foreign direct investment (FDI), which is the amount of money that individuals invest into foreign companies and other assets. In theory, economies can therefore grow more efficiently and can more easily become competitive economic participants. All of the economic theories of international trade suggest that it enhances efficiency. In this regard, international trade is like a new technology. It adds to the productive capacity of all countries that engage in trade. Global trade allows wealthy countries to use their resources - whether labor, technology or capital - more efficiently. Because countries are endowed with different assets and natural resources (land, labor, capital and technology), some countries may produce the same good more efficiently and therefore sell it more cheaply than other countries. If a country cannot efficiently produce an item, it can obtain the item by trading with another country that can. This is known as specialization in international trade.

Meanwhile International Trade as a main factor of globalization has extremely affected on the human resources not only by increasing the income of producers or the country but also the human capital which is involved in this sect. International trade has caused the nations to work hard on their human resources in order to attract more and more assets and investments toward themselves such as, enhancing the surface of education, knowledge, encouraging of their abilities and skills etc.

International trade besides has spread the cultures of one nation to in other one so that human resource can use from their experiences and ideas, besides its international trade that has carried out the technologies and new innovations around the world so we can conclude that international trade raises the living standard of the human resources and let them to have great income, education, welfare and has a quite big influence on the routine work of them.

International Trade Theory deals with the different models of international trade that have been developed to explain the diverse ideas of exchange of goods and services across the global boundaries. The theories of international trade have undergone a number of changes from time to time. The basic principle behind international trade is not very much different from that involved in the domestic trade. The primary objective of trade is to maximize the gains from trade for the parties engaged in the exchange of goods and services. Be it domestic or international trade, the underlying motivation remains the same. The cost involved and factors of production separate international trade from domestic trade.

International trade involves across border exchange and this increases the cost of trading. Factors like tariffs, restrictions, time costs and costs related with legal systems of the countries involved in trade make the international trade a costly affair; whereas the extent of restrictions and legal hassles are considerably low in case of domestic trade. When it comes to the comparison between international trade and domestic trade, the factors of production assume a crucial role. There is no denying that mobility of factors of production is less across nations than within the domestic territory. The incidence of trade in factors of production like labor and capital is very common in case of domestic trade; while in case of international trade exchange of goods and services contributes the major share of the total revenue.

International trade theory has always been a preferred field of research amongst the traditional and contemporary economists. The international trade models attempt to analyze the pattern of international trade and suggest ways to maximize the gains from trade. Among the different international trade theories, the Ricardian model, the Heckscher-Ohlin model and Gravity model of trade are worth mentioning. The Ricardian model of international trade is developed on the theory of comparative advantage. According to this model countries involved in trade, specialize in producing the products in which they have comparative advantage. The Gravity model of trade provides an empirical explanation of international trade. According to this model, the economic sizes and distance between nations are the primary factors that determine the pattern of international trade. The international trade theories also deal with challenges before international trade, international trade laws, rules of international trade and many other related issues. The Heckscher-Ohlin model put stress on endowments factors of production as basis for international trade.[2,18-23]