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Economic and political aspects of international trade theory

Introduction

Because it is comprised of countries with different cultural, economic and social backgrounds, the world of international business is extremely complicated. This complexity is further deepened by the fact that all countries, whether they like it or not, are economically related to each other in one way or another. For example, an increase in the price of one commodity such as oil creates a long and complex chain of events which makes analysis of all the causal relationships virtually impossible. The mass of data one finds in this situation is unmanageable and meaningless without some theoretical framework.

It should not surprise us that many theories have been developed to discern some orderly relationship between economic variables. However, we should remember that a theory is an abstraction from reality based on certain simplifying assumptions such as holding some variables constant or even not considering them and, unfortunately, the world is not a simple place. As we shall see in this topic, no single theory explains all the phenomena we see in world trade. This too should not surprise us because world trade is heavily influenced by politics - an area in which prediction is likely to be inaccurate.

This chapter is in two parts to keep subjects in the sequence they appear in your textbook. Part A is concerned with international trade theories (Chapter 4 of your textbook) and Part B deals with the political aspects of world trade (Chapter 5 of your textbook).

Topics

The following is the outline of the topics covered in this chapter:

Learning outcomes

The objectives for this chapter have been carefully constructed to reflect the most significant concepts and ideas we are going to cover and to provide a focus for your work during the chapter. After completing the work you should be able to:

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