To what extent have economists provided a satisfactory theoretical and empirical explanation of the global patterns of trade?

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To what extent have economists provided a satisfactory theoretical and empirical explanation of the global patterns of trade?

Economists study the economical behaviour of humans so they can produce models, theories and equations that mimic patterns of conduct in order to predict how they will behave in the future. Trade has always been of interest to economists. The last decades have seen an increase in the number of economists trying to come up with explanations of global patterns of trade. This is related to the recent increase in global trade and international integration, the swelling popularity of the globalisation phenomena and the increase in the number of economists advocating free trade as the best policy to further economic development and increase living standards. These explanations of trade patterns are useful as they help countries decide who to trade with, what to trade and how to do it. Many reputed economists have attempted to capture the essence of international trade in theories but not all manage to develop a theoretical model that would hold in the real world.

Back in the times when mercantilism was the main concept people had of accumulation of wealth, there was this general misconception that trading was a zero-sum game. This means that, when countries traded, one country got rich at the expense of the other one. Nations resorted to waging war between each other in order to gain the other’s resource and exploit them for wealth.

It was not until Smith, 1766, that the idea of international trade being crucial in raising global living standards was introduced. The belief that countries may have an absolute advantage, meaning that a nation is more productive in the manufacture of a good than another country, marks the basis for international trade. Smith argues that specialisation leads to the maximisation of output and both countries engaged in trade may benefit from the consumption of goods outside their production possibility frontier, hence, maximising their utility. Ricardo furthered Smith’s concept in order to explain that countries could also gain from trade even if they had an absolute advantage in both goods. He introduced the idea of comparative advantage, relying in the fact that a country’s opportunity cost in the production of a particular will give both nations a basis to benefit from trade (Salvatore, 2010),

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Work done by Heckscher and Ohlin developed the idea that countries trade was based in their different factor endowments, leading to them having a comparative advantage in certain kinds of production. The model revolved around the concept that capital abundant nations would produce and export capital-intensive goods while importing labour-intensive goods from labour abundant countries and vice versa. This diagram shows gains from trade according to the Heckscher-Ohlin Model:

On the other hand, although the concept of comparative advantage has been generally recognised as valid to describe inter-industry trade, it has failed various empirical tests, the Leontief ...

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