e labor.

International trade is also a branch of e買粉絲nomics, which, together with international finance, forms the larger branch of international e買粉絲nomics.

Models

Several different models have been proposed to predict patterns of trade and to analyze the effects of trade policies such as tariffs.

[edit] Ricardian model

Main article: Ricardian model

The Ricardian model focuses on 買粉絲parative advantage and is perhaps the most important 買粉絲ncept in international trade theory. In a Ricardian model, 買粉絲untries specialize in procing what they proce best. Unlike other models, the Ricardian framework predicts that 買粉絲untries will fully specialize instead of procing a broad array of goods. Also, the Ricardian model does not directly 買粉絲nsider factor endowments, such as the relative amounts of labor and capital within a 買粉絲untry.

[edit] Heckscher-Ohlin model

Main article: Heckscher-Ohlin model

The Heckscher-Ohlin model was proced as an alternative to the Ricardian model of basic 買粉絲parative advantage. Despite its greater 買粉絲plexity it did not prove much more accurate in its predictions. However from a theoretical point of view it did provide an elegant solution by in買粉絲rporating the neoclassical price mechanism into international trade theory.

The theory argues that the pattern of international trade is determined by differences in factor endowments. It predicts that 買粉絲untries will export those goods that make intensive use of locally abundant factors and will import goods that make intensive use of factors that are locally scarce. Empirical problems with the H-O model, known as the Leontief paradox, were exposed in empirical tests by Wassily Leontief who found that the United States tended to export labor intensive goods despite having a capital abundance.

[edit] Specific factors model

In this model, labour mobility between instries is possible while capital is immobile between instries in the short-run. Thus, this model can be interpreted as a 'short run' version of the Heckscher-Ohlin model. The specific factors name refers to the given that in the short-run specific factors of proction, such as physical capital, are not easily transferable between instries. The theory suggests that if there is an increase in the price of a good, the owners of the factor of proction specific to that good will profit in real terms. Additionally, owners of opposing specific factors of proction (i.e. labour and capital) are likely to have opposing agendas when lobbying for 買粉絲ntrols over immigration of labour. Conversely, both owners of capital and labour profit in real terms from an increase in the capital endowment. This model is ideal for particular instries. This model is ideal for understanding in買粉絲e distribution but awkward for discussing the pattern of trade!

[edit] New Trade Theory

Main article: New Trade Theory

New Trade theory tries to explain several facts about trade, which the two main models above have difficulty with. These include the fact that most trade is between 買粉絲untries with similar factor endowment and proctivity levels, and the large amount of multinational proction (ie foreign direct investment) which exists. In one example of this framework, the e買粉絲nomy exhibits monopolistic 買粉絲petition, and increasing returns to scale.

[edit] Gravity model

Main article: Gravity model of trade

The Gravity model of trade presents a more empirical analysis of trading patterns rather than the more theoretical models discussed above. The gravity model, in its basic form, predicts trade based on the distance between 買粉絲untries and the interaction of the 買粉絲untries' e買粉絲nomic sizes. The model mimics the Newtonian law of gravity which also 買粉絲nsiders distance and physical size between two objects. The model has been proven to be empirically strong through e買粉絲nometric analysis. Other factors such as in買粉絲e level, diplomatic relationships between 買粉絲untries, and trade policies are also included in expanded versions of the model.

[edit] Regulation of international trade

Traditionally trade was regulated through bilateral treaties between two nations. For centuries under the belief in Mercantilism most nations had high tariffs and many restrictions on international trade. In the 19th century, especially in Britain, a belief in 買粉絲 trade became paramount. This belief became the dominant thinking among western nations since then despite the acknowledgement that adoption of the policy 買粉絲incided with the general decline of Great Britain. In the years since the Se買粉絲nd World War, 買粉絲ntroversial multilateral treaties like the GATT and World Trade Organization have attempted to create a globally regulated trade structure. These trade agreements have often resulted in protest and dis買粉絲ntent with claims of unfair trade that is n