INTERNATIONAL TRADE THEORY

By Jennifer Leonard

Topic Number 3

IBUS 330 Term Paper – Spring Semester 2015

San Francisco State University

ABSTRACT

International Trade Theory produces historical explanations for the development of international trade. A close look at the motivations of internationalizing and the various reasons for either embarrassing or constricting global trade are easy to understood when evaluated in historical and economical context. This essay attempts to convey how International Trade historical evolution, understand how each advance was evoked, and how it is now understood in contemporary society.

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HISTORICAL EVOLUTION OF INTERNATIONAL TRADE THEORY

Why do countries trade with one another? International trade allows a country to use and access

resources more efficiently through the specialization and division of labor. International trade

allows both trading parties to use both workers and industries more efficiently and productively.

There are two classifications of international trade theory—the first is nation level classification

that involves theories accepted since the sixteenth century. Nation level theories work to answer

two primary questions: the first question begs the quintessential foundation of international

exchange that is “why do nations trade”. National level theory secondly works to answer, “How

nations can enhance their competitive advantage”. The second category of trade theory is the

firm level theories. Firm level theories are explanations of how firms can not only evoke

superior organization performance, but also sustain it. Firm level theories address two

supplementary questions: First, “why and how firms internationalize” and second, “how

internationalizing firms can gain and sustain a competitive advantage” (Nicholson, 2012).

International trade’s historical evolution is gradual and each theory builds upon the latter. Each

theory gains momentum by providing further insight on the complexity of the processes and

motivations of internationalizing and e competitive advantage—starting from the simplest form

of international involvement “Export” to the most involved “Green Venture FDI”.

Section 1

NATION-LEVEL

I. Classical Theories

Why Nations Trade. The theories of international trade historically evolve as product of

a changing understanding of wealth and economies of scale. Though trade has always occurred,

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its structure and systematic implementation have undergone major alterations throughout time.

With the emergence of better global understanding and increased international competition, trade

has slowly expanded. Classical international theory aimed to explain why nations traded: starting

as strategies involving accumulating gold by net exports in the mercantilist theory, moving then

to the absolute advantage principle, to the factor proportions theory, to the international product

life cycle. Finally to the complex and dynamic theory of new trade theory that acknowledges a

perpetually changing market place, integrating elements such as shifting coefficients of

production and economies of scale into trade consideration and understanding.

Mercantilism. In the 16th century a new theory known as Mercantilism began to gain

popularity as one of the founding classical economic theories. The theory stems from philosophy

that the world has a set limited supply of finite wealth in the form of natural resources, thus the

best way for a nation to acquire wealth is a surplus of exports with limited imports (Smith,

1904). This theory’s development is a reaction to the major economic complications with global

trade experienced by powerful nation states that included: Holland, France, Spain, and England

(Carpenter, 2015). The emergence of powerful nation states brought constant warfare and the

exploitation of poorer states. Warfare requires building of armies, ample supplies, metals and

other natural resources, thus Mercantilism began to emerge. Mercantilist theory rests on the

notion that maximum nation wealth is achieved solely through a nation states trade consisting of

net exports. The primary example of mercantilism is the use of the America’s by Britain, who

colonized the America’s in order to exploit the rich resources making Britain richer and stronger

and its opponents at a disadvantage through acts such as the Navigation Act which restricted

trade between England and it’s colonies with other nations (Smith, 1904). Similar to

mercantilism, neo-mercantilism was a classical theory based on zero-sum economics, it

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discouraged imports and encouraging exports (Nicholson, 2012). This theory aimed to control

capital movement in order to increase the level of the nation’s foreign reserves—it does this to

discourage domestic consumption and promote capital development.

Though mercantilism is considered one of the foundational pillars of International Trade

theory and economics, ideas of running solely a trade surplus, exporting exclusively, it has since

been nothing more than a historical artifact. The theory surpass then countered with Adam

Smith’s An Inquiry into the Nature and Causes of the Wealth of Nations 1776. Adam Smith

criticized mercantilist suggesting that not every nation can become wealthy, that the theory

favored the few. Smith argues that both participating nations benefit from the somewhat

uninhibited movement of commodities and services between nations (Smith, 1904). Smith

focused on instances in which regulations and power were abused, and how mercantilism

provided such opportunities. Adding to the differential of the two theories, Smith contradicts

mercantilism’s core philosophies suggesting that a nations wealth is more so calculated by the

goods/services available to the people rather than the standard accumulation of gold or silver.

Though it was a subtle break, it was still a divergence from mercantilist thought that opened

ideas of not only mutual trade participation but also of government’s degree of involvement.

Bringing about the theory of Absolute Advantage. According to Adam Smith, international

trade is advantageous for both nations because when they trade primarily a commodity that is

comparably superior (in inputs, resources, or cost) (Adam, Smith). In Smith’s book he describes

absolute advantage specifically in the context of international practice using labor as the primary

input.

Absolute advantage theory allows nations to divide labor and specialize in specific

advantageous commodities. The theory is founded on the principle that the international market

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is bigger than the domestic market, thus international trade is mutually beneficial. Trade evoking

absolute advantage theory allows a division of labor and a consequential increase of the value of

exchangeable goods—this allows the true wealth of the nation to increase (Cartenson, 2004).

Smith’s theory differs because he believes in the minimization of imports but not the negation of

them. Then comparative advantage was developed in the late 19th century in reaction to

splinters in absolute advantage. Its fruitation is primarily attributed to David Ricardo’s On the

Principles of Political Economy and Taxation. Ricardo aimed to explain why countries engage in

international trade regardless if they had an absolute advantage and how that mutual trade could

be beneficial regardless.

Comparative advantage holds that it is beneficial for two or more nations to trade

depending not only on an absolute advantage but also inclusive of their factor endowments and

advancement of technological progress (even if one only is relatively more efficient at producing

the good or service) (Ricardo, 1998). The key differentiation between comparative advantage

and absolute advantage is that trade does not focus solely on monetary costs of product but

begins to include other factors such as opportunity cost (Sen, 2010). This is one of the most

misunderstood principles as it can be counter intuitive. The core of comparative advantage is the

assumption of immobility of capital. The principle of comparative advantage contributes to this

by playing to the natural forces that underlie a free market (Ricardo, 1998). Under natural

circumstances in a free market, a nation will produce more and consume less of a commodity for

which he has a comparative advance thus comparative advantage comes about.

Comparative advantage theory is criticized for being a static theory that does not

accommodate to the dynamic or changing nature of a nation’s advantages that can shift, deplete,

or be altered. Thus the theory of comparative advantage neglects long term development

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(Helpman, 1981). As one can see the early trade theories are were limited—in their attempts to

provide rational for why nations trade they fail to account to what make trade so complex

including factors such as product differentiation and branding. To answer to some of the

limitations of the early international trade theories, Eli Heckscher and Bertil Ohlin created the

factor proportions theory in the 1920’s (Heckscher, 1920). It is also called the factor

endowments theory and it builds upon Ricardo’s comparative advantage by further addressing

the complexity of the market by attempting to predict patterns of production (Heckscher, 1920).

A countries factor endowment, economically speaking, is understood as the land, labor,

and capital a nation possesses. By looking closely at factor endowments of each participating

nation—factor proportions theory takes into account the inclusive quantity and cost of

production for inputs and the importation of scarce factors (Suranovic, 2003). A key point on the

scale of economic development is the shift on the understanding labor inputs. Ricardo stated that

trade was primarily motivated by advantages stemming from differentiation in labor due the

global proficiency gradation of production technologies (David, Ricardo). However the factor

proportion theory focuses on a single factor, labor, but removes technological variations by

substituting it with deterrent variable capital endowments. This advances the understanding of

international trade, allowing focus to shift onto inter-country variation thus bringing about the

factors limitation theory. This theory rests on two key concepts: First, that products differ in

efficiency and quantity of factor (labor, resources, and capital) and secondly, that countries differ

in the efficiency and quantity of production features they poses (Cartenson, 2004).

Trade in effect reflects these factor endowments and differentiation of production factors.

Once again this principle is developed on the basis of occurrences under a free market—nations

choose to export scarce factors intensively as is intuitive and importing goods containing

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comparatively scarce factors all driven by the natural economic forces of price equalization. In

attempt to test Heckscher and Ohlin’s theory Wassily Leontief studied empirical case studies.

Leontief found that the U.S. (a capital abundant country) imported capital-intensive commodities

and exported several labor-intensive commodities, a production factor the U.S. is not endowed

with (Carpenter, 2015) This discovery lead to the development of this econometric paradox, that

numerous factors determine the composition of a countries exports and imports. This became

known as the Leontief paradox and it explains that a nation with high capital-per worker with

have a corresponding low capital-labor ratio. More broadly this paradox’s significance in

historical evolution is the discussion recognizing international trade as interminably complex,

unexplainable by simple parameters or incomprehensive single factor focused theories

aforementioned by Smith, Ricardo, and Heckscher.

The discoveries by Wassily Leontief contributed to the perceived failure of Heckscher

and Bertil’s factor proportions theory. Thus came about the product life cycle theory which was

coined by Raymond Vernon in 1966 (Helpman, 1981). While observing production development

in various nations and markets Vernon noted that every product or production technologies

undergo stages (Helpman, 1981). The focus for understanding international product life cycle is

the three core stages of progression articulated by Vernon. The three stages of production are

introduction, maturity, and standardization (Helpman, 1981). Essentially the product life cycle

theory demonstrates dynamic version of comparative advantage, an aspect that was originally

neglected by the comparative advantage theory. A country with a comparative advantage does

not stay static as the production process evolves as well as the innovation and thus neither should

the theory’s application.

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Among the various theories there is a neglect to examine the determinants of comparative

advantage. That is why Paul Krugman developed the new trade theory in the 1979, basing it

upon assumptions of monopolistic competition and the laws of increasing returns to scale

(Helpman, 1981). Krugman’s new trade theory conveys the determinants of comparative

advantage (such as geography and factor proportions) into the model—building further upon the

Ricardian model of comparative advantage (Cartenson, 2004). In addition, in the new trade

theory, Krugman focuses on the movement of capital and people that is an element of

Heckscher’s factor proportions theory that is assumed static (Helpman, Elhanan). New trade

theory builds upon its predecessor overarching theories by incorporating relevant elements of

determinants of comparative advantage, transportation costs, and the dynamic nature of trade

patterns due to shifting capital and migration (Kemp, 2008). New trade theory addresses trade

growing rapidly among industrialized companies with comparable factors of production by

arguing that increasing economies of scale are necessary for efficient international production

(Kemp, 2008). Krugman concluded that his predecessor’s economic theories were built around

assumptions of symmetrical production, meaning that the production coefficients are constant—a

much too strict of an assumption to warrant accuracy in a dynamic and evolving international

market. This theory is crucial for economic theory and understanding the historical evolution of

international trade. It explains trends in global growth, for example why under-developed

economies with low GDP struggle to develop certain production facilities as they lag too far

behind the economies of scale by more developed nations (Kemp, 2008). The poorer state may

have a more intrinsic comparative advantage, however Krugman’s theory addresses how the

determinants of comparative advantage can outweigh in importance the comparative advantage

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itself. New trade theory recognizes the significance of economies of scale in the development

and patterns of international trade.

II. Contemporary Theories:

Increase Comparative Advantage. The classical theories supply justifications for trade through

a slow evolution of thought starting from simple precedents to complex interpretations. However

the classical theories fail to recognize problems such as nations increase comparative advantage

by not providing an efficient method of allocating resources (Kemp, 2008). Thus came about

three theories in the contemporary era that seek to expand upon the possibility of increasing a

national competitive advantage. These three contemporary theories include: the competitive

advantage of nations, the determinants of national competitive advantage in Michael Porters

diamond model, and national industrial policy.

A nation is not born with prosperity it creates it, in the late nineteen hundreds the

importance of international business became evident and irrefutable. In effect, nations sought to

theorize how to create prosperity by positioning themselves for success in relativity to

involvement with international trade. Michael Porter in The Competitive Advantage of Nations

attributes a nations economic potential not solely to inherited factor endowments but rather to a

reciprocal relationship with its collective competitive advantages. However, in order to

understand competitive advantage it is important to understand the difference between

competitive advantage and comparative. A competitive advantage is a distinctive set of assets a

firm possesses, it can include specific capabilities, knowledge, skills and so on. Comparative

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advantage is a distinctive set of assets a country possesses which can include natural resources

and abundance of labor (Porter, 1998).

Michael Porter categorizes two forms of a nation’s competitive advantage: cost

advantage, and differentiation advantage (Porter, 1998). In addition, Porter’s theory of

competitive advantages most relies on innovation—Innovation is the product of research and

development. Its scale of return, altering coefficients include: development of new technologies,

production design, production techniques, marketing strategy, training programs, and labor

development.

Micheal Porter argues that competitive advantage originates from determinants of

competitive advantage, much like the theories of Krugman. The four elements of determinants as

defined by Porter are demand conditions, factor conditions, related and supporting industries,

and firm strategy that build the points on Porter’s Diamond Model (Porter, 1998). Demand

conditions refer to the intrinsic nature of the domestic market demand for goods and services. In

specific, demand is deterred by the strength and sophistication of the nations consumer base.

These four elements individually and collectively affect a nations competitive advantage. All of

the points are intertwined and affect one another and are self-reinforcing. The classical theories

viewed comparative advantage as residing in a nations factor endowments but Porter contradicts

this view, arguing a nation can create its wealth by altering and further developing various

elements of competitive advantage.

National industrial policy underlines the notion that a nation’s competitive advantage is

not merely determined by inherited natural resources (Nicholson, 2012). Rather the policy suggests

that nations create their own wealth through advancement of respective competitive advantage

coefficients. A nation’s wealth is deterred by the nation’s infrastructure, education system, or capital

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layout all of which can be improved upon (Deichmann, 2001). National industrial policy is the

systematic resource allocation aimed towards cultivation of factor endowments. Under this policy

the government can significantly alter the global positioning of it’s respective nation in order to

foster economic progression (Kemp, 2008). National industrial policy often contain common

features such as aspects of interventionism and thus are naturally often opposed by free market

advocates, industrial policy often include elements of trade policy and fiscal policy (Deichmann,

2001). The relationship between government and industry is often an ambiguous grey area, and for

government involvement in the development of trade there is some contestation.

Section 2

FIRM-LEVEL

I. Firm Internationalization

How and Why Firms Internationalize. The classical theories of international trade focused on

“why and how” international business occurs (Nicholson, 2012). That focus shifted in the 1960’s

when scholars began to develop theories geared towards internationalization or the process of

increasing involvement in international markets (Caballero, 2015). Firms internationalize in

order to compete with a perpetually integrating economic market, it does so through a gradual

and incremental progression of international involvement facing obstacles including uncertainty

and bounded rationality. Though difficult, more and more firms are internationalizing, in

addition firms are even internationalizing either when they are founded or early in their

developmental stage (Caballero, 2015.). These firms are known as born globals and international

entrepreneurs, with time they become increasingly prevalent (Nicholson, 2012).

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The business environment is no longer viewed in the neoclassical light, with a market

influenced by a independent demand and supply. The business environment is now understood it

is a network of relationships and involvement and thus a firm’s internationalization process

works to incorporate the influences of that network. The Internationalization Process Model

developed in 1970 describes the process of businesses expanding transnationally with the

underlying assumptions of uncertainty and bounded rationality (Carpenter, 2015). This model

describes a gradual process of alteration from international involvement in the simplest form, in

export, to the most highly involved FDI. The timeliness of internationalization, according to the

model, is a consequence of management’s hesitance and uncertainty due to a lack of information

on various international markets and absence of experience with cross boarder transactions. The

model identifies five progressive stages of firm’s internationalization: domestic focus, pre-export

stage, experimental involvement, active involvement, and lastly committed involvement (Ethier,

1982). Firms change, according to the model, by learning from experience of operations, or

through out the level of commitment decisions made.

Thus bringing about born globals, born globals are firms that involve themselves in

international transactions from the beginning of their development (Nicholson, 2012).

Internationalizing so early is the result of transnational elements such as intense international

competition, interweaving of world market economies, and advancements in not only

transportation but also communication technologies (Ethier, 1982). These innovations reduce the

cost of international ventures easing the process of internationalization. The appearance of born

globals is a more contemporary trend, whereas historically MNEs played the majority domain.

Born globals are typically smaller in size, an attribute consequence of their young age (Ethier,

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1982). Born globals speak to the nature of the economy, and its perpetual graduation to a

complex and completely integrated international market.

II. Increase Comparative Advantage

Internationalization and Sustainability. Historically, MNEs have played a dominant role in

international business involvement. MNEs role in the market it can be analyzed to explain what

make a firm pursue, succeed, and sustain internationalization (Ethier, 1982). Firms that

internationalize can gain and sustain competitive advantage through various tactics. Some of

which include FDI based explanations such as: monopolistic advantage theory,

internationalization theory, and Dunning’s eclectic paradigm (Nicholson, 2012). Firm’s can

internationalize through non-FDI based explanations as well such as international, collaborative

ventures, and networks (Nicholson, 2012). The aggregate of these activities drive

internationalization and the progressive integration of world economies.

FDI Based Explanations elude to FDI the process in which firms acquire and retain at

least one VAC inside the firm—retaining control over foreign production. FDI implies control

and ownership this allows the firm to while avoid the common disadvantages of international

operations having coordinating with a foreign producer as with exports and licensing (Nicholson,

2012). The FDI grants the operating firm with a small degree of monopoly power relative to

foreign market competitors. MNEs historically primarily evoke FDI as the strategy for global

expansion. This is arguable because it provides the MNE, or such operating firm, with control

over production, resources, and opportunities pursued in the foreign market (Razin, 2007).

There are three theories regarding the process gaining and then sustaining competitive

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advantage: Monopolistic advantage theory, internalization theory, and Dunning’s eclectic

paradigm (Nicholson, pg. 282, 2012).

Monopolistic Advantage Theory was defined by Stefan Hymer in his book Caves in

1971, he uses the theory to marry the ideas of firm or nation-specific advantages with the

studying of FDI (foreign direct investment). According to Hymer, monopolistic advantage theory

occurs when a firm has control over one or many unique resources that the firm then leverages in

order to generate profits. A firm’s advantage can include anything from economies of scale,

superior technology, or specific skills or knowledge (Nicholson, 2012). As stated earlier, firms

who internationalize evoking FDI are more likely to have success—particularly if the firm holds

certain/specific advantages over foreign competition because it sanctions a degree of

monopolistic advantage.

Monopolistic advantage theory holds that an asset must hold at least two conditions in

order to be beneficial in the international market. First that scale of return for the asset should be

significantly superior to those available in the domestic home-market. This is a necessary

condition that serves to motivate a firm to expand globally. The second condition is that returns

available from the external market must be used to those earned by domestic competitors in its

industry in the same external market (Nicholson, 2012). The purpose of this condition is to

ensure to maximize profits, unparalleled by domestic competitors also competing in the foreign

market. The core concept of monopolistic advantage theory supports the idea that a firm chooses

FDI as an entry strategy because it allows the operating firm, usually an MNE, to operate and

control foreign subsidiaries that are more profitable than operations if they were to be practiced

domestically.

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The internalization theory explains the process by a firm may achieve competitive

advantage by acquiring then retaining at least one VAC within the firm. Internalization only

occurs when firms perceive the benefits to exceed the costs. Again, this minimizes mistakes and

disadvantages that occur from reliance on foreign intermediaries, collaborators, and other

external partners (Nicholson, 2012). With Internalization theory, power derives from

internalizing one or more of the steps of production (in the VAC) in order to retain a competitive

advantage. Internalizing allows for a significant amount of control over production and foreign

operations—leading to profit maximization, sustainability, increased efficiency, but most

importantly, reduced risk of leaked knowledge or proprietary monopolistic assets (Razin, 2007).

The primary motivator to internalize certain VAC’s is to control and contain proprietary

expertise or knowledge necessary for the development, production, success, and subsequent

demand of a product and the reduce risk of it’s exposure (in regards to proprietary knowledge

and pacts).

The Eclectic Paradigm is a theory produced by John Dunning that establishes a three-

tiered framework evaluating the net competitive advantages a firm possesses with the relative

benefits of FDI (Torstensson, 1998). The eclectic paradigm is based on the assumption that firms

will opt for internal transactions when they operate with lower costs (Nicholson, 2012). In order

for FDI to be beneficial in a foreign country according to Dunning, the following prospects must

be present: First Ownership-Specific advantage must be present. Which means exactly what it’s

name states, that the firm holds a competitive advantage such as skill, knowledge, specific assets

ect. That provides the firm with an advantage. Second Location-specific advantages that focuses

on where the company derives the greatest benefit, evaluating the factors a country provides to a

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domestic firm such as skilled labor, cost of labor, or most acknowledged, natural resources.

Lastly Internalization advantages meaning a firm benefits from a firm internalizing a link in the

VAC rather than coming into agreement with a foreign competitor through licensing or a joint

venture (Nicholson, 2012). Overall the eclectic paradigm stipulates numerous advantages

comparative to challengers with the ability to control and subsequently guide the prospects of

any given VAC (Vachani, 2005).

Non-FDI Based Explanations. FDI became the primary entry strategy as result of the increase

of MNEs in the 1960’s-1980’s (Vachani, 2005). Firms quickly began to realize the impending

relevance of the global market and collaborative and flexible entry strategies. Of which is the

international collaborative ventures and network and rational asset principles. Bringing about the

concept of a collaborative venture that is essentially a business relationship or partnership in

which a firm intends to involve it with international trade but is not willing or able to take on the

full amount of responsibility international trade entails. An IJV (international joint venture) can

be a competitive tool for entering business in a foreign market with shared start-up and operation

risk (Kekic, 2005). A collaborative venture minimizes risk when entered with a foreign partner.

In addition, strategic alliances formed in IJV’s give firms a competitive advantage allowing

access to their IJV’s partner’s resources, customers, production techniques, technology,

marketing techniques, ect. IJV’s provide opportunities through legal relationships and networks,

these prospects allow ample opportunity to increase profit margins and excel production

innovation, and domestic expansion. International collaborative ventures involve firms of two

major types: equity based joint venture and non-equity based strategic alliance (Kekic, 2005).

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Today’s firms are increasingly embedded into networks and relational assets that

represent the economically beneficial but influential long-term ties the firm undertakes with

other business entities. As national economies become more closely intertwined, the value of

international corporate involvement becomes simultaneously exponentially important.

Section 3

CONCLUSION

Why Do nations Trade? With trade a nation immensely broadens its market opportunity,

divides its labor and production, and allows for specializes in producing certain goods and

services. Over the past centuries world trade has undergone a gradual evolution. International

trade theory can be categorized into three segments, starting before World War I with Classical

explanations of international trade. Explanations include neo-mercantilism and mercantilism that

argues nations should seek to export more than they import to maximize wealth of a nation

through gold accumulation. (Nicholson, 2012, p.290) In effect nations often exported very

different goods, but in the 1980’s trade largely grew to involve very similar nations. International

trade theories evolved to the second segment of international trade in which theories and

understanding became more inclusive of various scales of economy factors which provide that

trade is beneficial regardless of an absolute advantage, including coefficients of comparative

advantage, and the dynamic nature of capital and migration with the New Trade Theory. The

third segment would be contemporary trade theory; here we see a comeback for comparative

advantage strategy.

Comparative advantage is one of the fundamental concepts used to understand

motivations of international trade, in later developments comparative advantage began to no

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longer be thought of has an inherent quality of a nation, but something that can be worked upon

and improved as in the competitive advantage of nations, Michael Porters Diamond Model, and

National Industrial Policy. The contemporary theories on how nations can increase their

comparative advantage recognize the absence of the issue in early theory and the various factors

that can alter a nations comparative advantage, including natural resources, technology, and skill

and capital.

Furthermore, to understand international trade it is fundamental to also understand why

and how a firm would internationalize. Firms internationalize in a gradual segmented process

which involved slow domestic involvement in the international market, starting with arms length

operations such as exports and licensing to full blown FDI. The process of internationalization

stems from managements uncertainty and bounded rationality. This trend has become so popular

that companies now are seen to embark upon international endeavors from their founding as a

firm, these are known as born globals and have inspired a whole philosophy concerning

international entrepreneurs. This trend suggests that international business will only become

more relevant in contemporary trade. Lastly this essay attempts to explain the various methods of

achieving internationalization success and sustainability through FDI and non-FDI explanations.

FDI and non-FDI put a given firm in a powerful position, it allows for the control of operations

and reduces the risks brought by coordination with a third party. The aggregate of these activities

drive internationalization and the progression of world economies interconnectedness. Thus are

the historical evolution of international trade theory and the understanding of firms’ international

involvement and global scales of economy.

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Section 4

LIST OF REFERENCES

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Caballero, Jose M. (15 Feb. 2015) Multilateral trade negotiations: international trade. Technical Cooperation Department, n.d. Web. <http://www.fao.org/>.

Carpenter, Mason A. (15 Feb 2015) What is international trade theory? Ed. Sanjyot P. Dunung. Atma Global, n.d. Web. <http://2012books.lardbucket.org/books>.

Ethier, Wildred J. (Jun 1982) National and international returns to scale in the modern theory of international trade. The American Economic Review. Vol. 72, No. 3 pp. 389-405. Web. <http://www.jstor.org/stable/1831539>

Helpman, Elhanan. (1981) Journal of international economics. International Trade in the Presence of Product Differentiation/ vol:11 iss:3 pg:305-340

Kekic, Laza. (2005) Foreign direct investment in the modern climate. <http://ccsi.columbia.edu/files/2014/01/FDI_15.pdf>

Kemp, Murray. (2008) International trade theory: A critical review. N.p.: Routledge, Print. Routledge Studies in International Business and the World Ec.

Nicholson, Joel D., Gary Knight, and John Risenberger. (2012) Theories of international trade and investment. The Power of Knowledge Across Cultures. 4th ed. N.p.: Pearson Learning Solutions, 263-94. Print.

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Porter, Micheal E. (1998) The competitive advantage of nations. N.p.: Palgrave Macmillan. Print.

Ricardo, David. (1821) On the principles of political economy and taxation. 3rd ed. London: John Murray, Print.

Sen, Sunanda. (2010) International trade theory and policy. A Review of the Literature. 2010: n. pag. Print.

Smith, Adam. (1904) An inquiry into the nature and causes of the wealth of nations. Ed. Edwin Cannan. 5th ed. London: Methuen & Co., Print.

Torstensson, J. (1998) Country size and comparative advantage: An empirical study. n. pag. 612

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