1. INTERNATIONAL TRADE
THEORIES
ABSOLUTE ADVANTAGE :
Ability of a party, firm, organisation to produce
more of good or services than competitor, using
the same amount of resources. Adam Smith firstly
describe the principal of absolute advantage. In
context of international trade, using labour as the
only input.

2. Comparative Advantage:
In economic law of comparative advantage says
that two countries will both gain from trade if, in
the absence of trade. They have different relative
cost of producing the same good. Even if the one
country is more efficient in production of all goods
than the other,both countries will still gain by
trading with each other, as long as they have
different relative efficiencies

3. The Factor Endowment Theory
The factor endowment theory was developed by
swedish economist Eli Heckscher and his student
Bertil Ohlin. Paul Samuelson and Wolfgang
stolper have also made significant contribution to
this theory.

4. The Factor Endowment Theory
In economics a country's factor endowment is
commonly understood as the amount of land,
capital, and entrepreneurship that a country
possessses and can exploit for manufacturing.
Countries with a large endowment of resources
tend to be more prosperous than those with a
small endowment, all other things being equal.

5. The Product Life Cycle
The produtct life cycle theory is an economic
theory that was developed by Raymond Vernon in
response to the failure of the Heckscher-Ohlin
model to explain the observed pattern of
interntional trade.

6. The Product Life Cycle
There are five stages in a product;s life cycle:
Stage 1: Introduction
New product are introduced to meet local(i.e
national) needs, and new products are first
exported to similar countries, countries with
similar needs, preferences, and incomes. If we
presume similar evolutionary patterns for all
countries, then products are inttroduced in the
most advanced nations. E.g.IBM PC's

7. The Product Life Cycle
Starge 2 : Growth
A copy product is produced else where and
introduced in the home country (and elsewhere)
to capture growth in the home market. This moves
production to other countries, usually on the basis
of cost of production.(e.g the clones of the early
IBM PC's were not produced in the US.) The
period till the maturity stage is known as the
saturation period.

8. The Product Life Cycle
Stage 3: Maturity
The industry contract and concerntrates—the
lowest cost producer wins here. (e.g. the many
clones of the PC are made almost entirely in
lowest cost locations.)
Stages 4 : Saturation
This is a period of stability. The sales of the
product reach the peak and there is no further
possibility to increase it.

9. The Prduct Life Cycle
Stage 5 : Decline
Poor countries constitute the only markets for the
product. Therefore almost all decline product are
produced in developing countries.(e.g PC's are a
very poor example here, mainly bacause there is
weak demand for computers in developing
countries. A better example is textiles.)

10. New Trade Theory
According to the New Trade Theory (NTT), a
company increases its output because of
specialisation and its consequent rise in
efficiency. As the output increases, the fixed cost
of production gets spread over a large number of
unit of output. NTT which were developed in the
late 1970s and early 1980s.