Literature Review on Theories of International Trade and Policies Behind Modern World Trade

Abstract

Purpose The essay aims to critically examine different theories proposed in the literature on international trade. Design/methodology/approach The essay is based on theoretical literature on the theories of international trade and working policies behind modern world trade globally. Findings The essay starts with traditional theories of international trade and an account of the mercantilist pattern of trade is provided, and comments are made on the use of simplified models in the classical theories. Significant focus is laid on the new trade theory and the use of strategic trade policies by advanced countries. A helpful supplement is provided regarding the role of FDI and technology in trade. A further effect of trade on growth is also analyzed. Theories of the 21st century are discussed with a call for models that can incorporate income inequality, political strategies, and other real-world factors. Research limitations/ implications The essay deals with only theoretical literature on international trade theories and policies. Findings and interpretation are subject to the theoretical development of international trade. Originality/ value The essay provided a critical explanation of international trade theories and tried to explain the paradigm shift in the theoretical framework of international trade.