Question

Critically discuss the main drivers of trade amongst countries together with theoretical models associated with each of them.

Answer 1

1. Country similarity- countries have the same objective of having a trade surplus and avoiding a trade deficit by ensuring that the value of exports is greater than the value of imports. Based on classical trade theory.
2. Absolute advantage- focus is on the ability of a country to produce a good more efficiently than another nation. Based on country based trade theory.
3. Comparative advantage- when a country cannot produce a good more efficiently than the other countries, however, it can produce that product better and more efficiently than it does other goods. Based on classical trade theory.