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International tradeis the exchange ofcapital,goods, andservicesacrossinternational bordersor territories.[1]In most countries, such trade represents a significant share ofgross domestic product(GDP).

While internationaltradehas been present throughout much of history (seeSilk Road,Amber Road,Salt road), its economic, social, and political importance has been on the rise in recent centuries. It is the presupposition of international trade that a sufficient level ofgeopoliticalpeace and stability are prevailing in order to allow for the peaceful exchange of trade and commerce to take place between nations.Trading globally gives consumers and countries the opportunity to be exposed to new markets and products. Almost every kind of product can be found on the international market: food, clothes, spare parts, oil, jewelry, wine, stocks, currencies and water. Services are also traded: tourism, banking, consulting and transportation. A product that is sold to the global market is an export, and a product that is bought from the global market is an import. Imports and exports are accounted for in a country's current account in the balance of payments.[2]

AncientSilk Roadtrade routesacrossEurasiaIndustrialization, advanced technology, includingtransportation,globalization,multinational corporations, andoutsourcingare all having a major impact on the international trade system. Increasing international trade is crucial to the continuance of globalization. Without international trade, nations would be limited to the goods and services produced within their own borders. International trade is, in principle, not different fromdomestic tradeas the motivation and the behavior of parties involved in a trade do not change fundamentally regardless of whether trade is a cross a border or not. The main difference is that international trade is typically more costly than domestic trade. The reason is that a border typically imposes additional costs such astariffs, time costs due to border delays and costs associated with country differences such as language, the legal system or culture.

Another difference between domestic andinternational tradeis thatfactors of productionsuch as capital andlaborare typically more mobile within a country than across countries. Thus international trade is mostly restricted to trade in goods and services, and only to a lesser extent to trade in capital, labor or other factors of production. Trade in goods and services can serve as a substitute for trade in factors of production. Instead of importing a factor of production, a country can import goods that make intensive use of that factor of production and thus embody it. An example is the import of labor-intensive goods by the United States from China. Instead of importing Chinese labor, the United States imports goods that were produced with Chinese labor. One report in 2010 suggested that international trade was increased when a country hosted a network of immigrants, but the trade effect was weakened when the immigrants became assimilated into their new country.[3]International trade is also a branch ofeconomics, which, together withinternational finance, forms the larger branch calledinternational economics. Trading is a value-added function: it is the economic process by which a product finds its market, in which specific risks are to be borne by the trader.

History[edit]Main article:Timeline of international trade

Roman trade with Indiaaccording to thePeriplus Maris Erythraei, 1st century CE.Thehistory of international tradechronicles notable events that have affected the trade between various countries.

In the era before the rise of thenation state, the term 'international' trade cannot be literally applied, but simply means trade over long distances; the sort of movement in goods which would represent international trade in the modern world.Models[edit]The following are noted models of international trade.[4]Adam Smith's model[edit]Adam Smithdisplays trade taking place on the basis of countries exercisingabsolute advantageover one another.[5]

HYPERLINK "http://en.wikipedia.org/wiki/International_trade" \l "cite_note-princeton-6"[6]Ricardian model[edit]

The law of comparative advantage was first proposed byDavid Ricardo.TheRicardian modelfocuses oncomparative advantage, which arises due to differences in technology or natural resources. The Ricardian model does not directly considerfactor endowments, such as the relative amounts of labor and capital within a country.

The Ricardian model is based on the following assumptions:

Labor is the only primary input to production

The relative ratios of labor at which the production of one good can be traded off for another differ between countries and governmentsHeckscherOhlin model[edit]Main article:HeckscherOhlin modelIn the early 1900s a theory of international trade was developed by twoSwedisheconomists,Eli HeckscherandBertil Ohlin. This theory has subsequently been known as the HeckscherOhlin model (HO model). The results of the HO model are that countries will produce and export goods that require resources (factors) which are relatively abundant and import goods that require resources which are in relative short supply.

In the HeckscherOhlin model the pattern of international trade is determined by differences infactor endowments. It predicts that countries willexportthosegoodsthat 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 HO model, such as theLeontief paradox, were noted in empirical tests byWassily Leontiefwho found that the United States tended to export labor-intensive goods despite having an abundance of capital.

The HO model makes the following core assumptions:

Labor and capital flow freely between sectors

The amount of labor and capital in two countries differ (difference in endowments)

Technology is the same among countries (a long-term assumption) Tastesare the sameApplicability[edit]In 1953, Wassily Leontief published a study in which he tested the validity of the Heckscher-Ohlin theory.[7]The study showed that the United States was more abundant in capital compared to other countries, therefore the United States would export capital-intensive goods and import labor-intensive goods. Leontief found out that the United States' exports were less capital intensive than its imports.

After the appearance of Leontief's paradox, many researchers tried to save the Heckscher-Ohlin theory, either by new methods of measurement, or by new interpretations. Leamer[8]emphasized that Leontief did not interpret H-O theory properly and claimed that with a right interpretation, the paradox did not occur. Brecher and Choudri[9]found that, if Leamer was right, the American workers' consumption per head should be lower than the workers' world average consumption.[10]

HYPERLINK "http://en.wikipedia.org/wiki/International_trade" \l "cite_note-11"[11]Many textbook writers, including Krugman and Obstfeld and Bowen, Hollander and Viane, are negative about the validity of H-O model.[12]

HYPERLINK "http://en.wikipedia.org/wiki/International_trade" \l "cite_note-Bowen98-13"[13]After examining the long history of empirical research, Bowen, Hollander and Viane concluded: "Recent tests of the factor abundance theory [H-O theory and its developed form into many-commodity and many-factor case] that directly examine the H-O-V equations also indicate the rejection of the theory."[13]:321In the specific factors model, labor mobility among industries is possible while capital is assumed to be immobile 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 assumption that in the short run, specific factors of production such as physical capital are not easily transferable between industries. The theory suggests that if there is an increase in the price of a good, the owners of the factor of production specific to that good will profit in real terms.

Example: Finland produces ocean cruisers and leather products such as reindeer fur, mink and fox coats.Lapland, the northern part of Finland, is sparsely inhabited by mostly Indians who hunt these wild animals. This cold climate or forest is a factor specific in the leather goods industry.

In the urban areas Finns are also engaged in cruise ship building and Finland exports cruisers to European countries. In addition to well educated workers, the ship building industry requires a large amount of capital, which is specific to that industry in that it cannot be used in the leather goods industry. Finnish workers are mobile between the two industries.

Additionally, owners of opposing specific factors of production (i.e., labor and capital) are likely to have opposing agendas whenlobbyingfor controls over immigration of labor. Conversely, both owners of capital and labor profit in real terms from an increase in the capital endowment. This model is ideal for understanding income distribution but awkward for discussing the pattern of trade.New Trade Theory[edit]Main article:New Trade TheoryNew Trade Theory tries to explain empirical elements of trade that comparative advantage-based models above have difficulty with. These include the fact that most trade is between countries with similar factor endowment and productivity levels, and the large amount of multinational production (i.e.,foreign direct investment) that exists. New Trade theories are often based on assumptions such asmonopolistic competitionand increasingreturns to scale. One result of these theories is thehome-market effect, which asserts that, if an industry tends to cluster in one location because of returns to scale and if that industry faces high transportation costs, the industry will be located in the country with most of its demand, in order to minimize cost.

Although new trade theory can explain the growing trend of trade volumes of intermediate goods, Krugman's explanation depends too much on the strict assumption that all firms are symmetrical, meaning that they all have the same production coefficients. Shiozawa, based on much more general model, succeeded in giving a new explanation on why the traded volume increases forintermediate goodswhen the transport cost decreases.[14]Gravity model[edit]Main article:Gravity model of tradeThe Gravity model of trade presents a more empirical analysis of trading patterns. The gravity model, in its basic form, predicts trade based on the distance between countries and the interaction of the countries' economic sizes. The model mimics the Newtonianlaw of gravitywhich also considers distance and physical size between two objects. The model has been proven to be empirically strong througheconometricanalysis.Ricardian theory of international trade (modern development)[edit]The Ricardian theory of comparative advantage became a basic constituent of neoclassical trade theory. Any undergraduate course in trade theory includes a presentation of Ricardo's example of a two-commodity, two-country model. A common representation of this model is made using anEdgeworth Box.

This model has been expanded to many-country and many-commodity cases. Major general results were obtained by McKenzie[15]

HYPERLINK "http://en.wikipedia.org/wiki/International_trade" \l "cite_note-16"[16]and Jones,[17]including his famous formula. It is a theorem about the possible trade pattern for N-country N-commodity cases.Contemporary theories[edit]Ricardo's idea was even expanded to the case of continuum of goods by Dornbusch, Fischer, and Samuelson[18]This formulation is employed for example by Matsuyama[19]and others. These theories use a special property that is applicable only for the two-country case.Neo-Ricardian trade theory[edit]Inspired byPiero Sraffa, a new strand of trade theory emerged and was named neo-Ricardian trade theory. The main contributors includeIan Steedman(1941) and Stanley Metcalfe (1946). They have criticized neoclassical international trade theory, namely theHeckscher-Ohlin modelon the basis that the notion of capital as primary factor has no method of measuring it before the determination of profit rate (thus trapped in a logical vicious circle).[20]This was a second round of theCambridge capital controversy, this time in the field of international trade.[21]The merit of neo-Ricardian trade theory is that input goods are explicitly included. This is in accordance with Sraffa's idea that any commodity is a product made by means of commodities. The limitation of their theory is that the analysis is restricted to small-country cases.Traded intermediate goods[edit]Ricardian trade theory ordinarily assumes that the labor is the unique input. This is a great deficiency as trade theory, for intermediate goods occupy the major part of the world international trade. Yeats[22]found that 30% of world trade in manufacturing involves intermediate inputs. Bardhan and Jafee[23]found that intermediate inputs occupy 37 to 38% of U.S. imports for the years 1992 and 1997, whereas the percentage of intra-firm trade grew from 43% in 1992 to 52% in 1997.

McKenzie[24]and Jones[25]emphasized the necessity to expand the Ricardian theory to the cases of traded inputs. In a famous comment McKenzie (1954, p.179) pointed that "A moment's consideration will convince one that Lancashire would be unlikely to produce cotton cloth if the cotton had to be grown in England."[26]Paul Samuelson

HYPERLINK "http://en.wikipedia.org/wiki/International_trade" \l "cite_note-27"[27]coined a termSraffa bonusto name the gains from trade of inputs.Ricardo-Sraffa trade theory[edit]Economist John S. Chipman observed in his survey that McKenzie stumbled upon the questions of intermediate products and postulated that "introduction of trade in intermediate product necessitates a fundamental alteration in classical analysis".[28]It took many years until Shiozawa succeeded in removing this deficiency.[29]The Ricardian trade theory was now constructed in a form to include intermediate input trade for the most general case of many countries and many goods. Chipman called this the Ricardo-Sraffa trade theory.

Based on an idea of Takahiro Fujimoto,[30]who is a specialist in automobile industry and a philosopher of the international competitiveness, Fujimoto and Shiozawa developed a discussion in which how the factories of the same multi-national firms compete between them across borders.[31]Internationalintra-firm competitionreflects a really new aspect of international competition in the age of so-calledglobal competition.International production fragmentation trade theory[edit]In his chapter entitledLi & Fung, Ltd.: An agent of global production(2001), Cheng usedLi & Fung Ltdas a case study in the international production fragmentation trade theory through which producers in different countries are allocated a specialized slice or segment of the value chain of the global production. Allocations are determined based on "technical feasibility" and the ability to keep the lowest final price possible for each product.[32]Fragmentation widens the scope for "application of Ricardian comparative advantage".[33]An example of fragmentation theory in international trade is Li and Fung's garment sector network with yarn purchased inSouth Korea, woven and dyed in Taiwan, the fabric cut in Bangladesh, pieces assembled in Thailand and the final product sold in the United States and Europe to major brands.[34]In 1995 Li & Fung Ltd purchased Inchcape Buying Services, an established British trading company and widely expanded production in Asia.[32]Li & Fung supplies dozens of major retailers, including Wal-Mart Stores, Inc., branded asWalmart.Largest countries by total international trade[edit]

Volume of world merchandise exportsMain articles:List of countries by exportsandList of countries by importsRankCountryInternational Trade of Goods(Billions ofUSD)Date ofinformation% GDP (nominal)

-World37,706.02013 est.50.5%

- European Union4,485.02013 est.24.2%

1 China4,201.02014 est.40.5%

2 United States3,944.02014 est.22.6%

3 Germany2,866.02014 est.74.3%

4 Japan1,522.42014 est.33.0%

5 France1,212.32014 est.42.6%

6 United Kingdom1,189.42014 est.40.4%

7 South Korea1,170.92014 est.82.6%

8 Hong Kong1,088.42014 est.375.8%

9 Netherlands1,041.62014 est.120.2%

10 Italy948.62014 est.44.2%

11 Canada947.22014 est.51.1%

12 India850.62014 est.41.5%

13 Russia844.22014 est.41.3%

14 Singapore824.62014 est.262.8%

15 Mexico813.52014 est.61.2%

16 Switzerland721.82014 est.101.4%

17 United Arab Emirates676.42014 est.156.7%

18 Belgium663.62014 est.181.1%

19 Spain655.22014 est.48.2%

20 Taiwan595.52014 est.112.5%

Top traded commodities (exports)[edit]RankCommodityValue in US$('000)Date ofinformation

1Mineral fuels, oils, distillation products, etc.$2,183,079,9412012

2Electrical, electronic equipment$1,833,534,4142012

3Machinery, nuclear reactors, boilers, etc.$1,763,371,8132012

4Vehicles other than railway$1,076,830,8562012

5Plastics and articles thereof$470,226,6762012

6Optical, photo, technical, medical, etc. apparatus$465,101,5242012

7Pharmaceutical products$443,596,5772012

8Iron and steel$379,113,1472012

9Organic chemicals$377,462,0882012

10Pearls, precious stones, metals, coins, etc.$348,155,3692012

Source:International Trade Centre

HYPERLINK "http://en.wikipedia.org/wiki/International_trade" \l "cite_note-35"[35]See also[edit] Borderless selling Columbian Exchange Commercial Revolution Commissions of the Danube River Customs union Demand vacuum Ecological Economics Emissions trading Free trade Free trade area Gravity model of trade Import (international trade) International business International trade law Internationalization Market Segmentation Index Mercantilism Monopolistic competition in international trade Most favoured nation clause The Observatory of Economic Complexity OPEC Political risk Protectionism Single Window System Trade Adjustment Assistance Trade bloc Trade facilitation Trade finance TradeRoots United Nations Conference on Trade and Development(UNCTAD)

Vermeer's Hat: The Seventeenth Century and the Dawn of the Global World

Lists List of countries by current account balance List of countries by imports List of countries by exports List of international trade topics List of economistsNotes[edit]1. Jump up^"Trade - Define Trade at Dictionary.com".Dictionary.com.2. Jump up^"What is international trade".Investopedia.3. Jump up^Kusum Mundra (October 18, 2010)."Immigrant Networks and U.S. Bilateral Trade: The Role of Immigrant Income".papers.ssrn. Retrieved2011-09-01.Mundra, Kusum, Immigrant Networks and U.S. Bilateral Trade: The Role of Immigrant Income. IZA Discussion Paper No. 5237. Available at SSRN:http://ssrn.com/abstract=1693334... this paper finds that the immigrant network effect on trade flows is weakened by the increasing level of immigrant assimilation.4. Jump up^Brief review of various theories is given in Bhaduri, R., and W. Bengal (2012) International Trade is the Lifeline of Development, The Journal of Research in Commerce, 1(1): 1-6.5. Jump up^"ABSOLUTE AND COMPARATIVE ADVANTAGE"(PDF).INTERNATIONAL ENCYCLOPEDIA OF THE SOCIAL SCIENCES, 2ND EDITION. pp.12. Retrieved2009-05-04.6. Jump up^Marrewijk, Charles van (2007-01-18)."absolute advantage"(PDF).Department of Economics, Erasmus University Rotterdam:world economy. Princeton University Press. Retrieved2009-05-03.7. Jump up^Leontief, W. W. (1953). "Domestic Production and Foreign Trade: The American Capital Position Re-examined".Proceedings American Philosophical Society97: 332349.8. Jump up^Leamer, E. E. (1980). "The Leontief Paradox Reconsidered".Journal of Political Economy88(3): 495503.doi:10.1086/260882.9. Jump up^Brecher; Choudri (1982). "The Leontief Paradox: Continued".Journal of Political Economy90(4): 820823.doi:10.1086/261092.10. Jump up^Bowen, H. P.; E. E. Leamer and L. Sveiskas (1987). "A Multi-country Multi-Factor Test of the Factor Abundance Theory".American Economic Review77: 791809.11. Jump up^Trefler, D. (1995). "The Case of Missing Trade and Other HOV Mysteries".The American Economic Review85(5): 10291046.12. Jump up^Krugman, P. R.; M. Obstfeld (1988).International Economics: Theory and Policy. Glenview: Scott, Foresman.

13. ^Jump up to:abBowen, H. P.; A. Hollander and J-M. Viane (1998).Applied International Trade Analysis. London: Macmillan Press.14. Jump up^Shiozawa, Y. (2007). "A New Construction of Ricardian Trade Theory: A Many-country, Many-commodity with Intermediate Goods and Choice of Techniques".Evolutionary and Institutional Economics Review3(2): 141187.doi:10.14441/eier.3.141.15. Jump up^McKenzie, Lionel W. (1954). "Specialization and Efficiency in the World Production".Review of Economic Studies21(3): 165180.doi:10.2307/2295770.16. Jump up^McKenzie, Lionel W. (1956). "Specialization in Production and the Production Possibility Locus".Review of Economic Studies23(3): 5664.doi:10.2307/2296152.17. Jump up^Jones, Ronald W. (1961). "Comparative Advantage and the theory of Tariffs; A Multi-Country, Multi-commodity Model".Review of Economic Studies28(3): 161175.doi:10.2307/2295945.18. Jump up^Dornbusch, R.; Fischer, S.; Samuelson, P. A. (1977). "Comparative Advantage, Trade, and Payments in a Ricardian Model with a Continuum of Goods".The American Economic Review67(5): 823839.19. Jump up^Matsuyama, K. (2000). "A Ricardian Model with a Continuum of Goods under Nonhomothetic Preferences: Demand Complementarities, Income Distribution, and North-South Trade".Journal of Political Economy108(6): 10931120.doi:10.1086/317684.20. Jump up^Steedman, Ian (Ed) 1979Fundamental Issues in Trade Theory, London: MacMillan and New York: St. Martin's Press. Steedman, Ian 1979Trade Amongst Growing Economies, Cambridge: Cambridge University Press.21. Jump up^Chris Edwards (1985)The fragmented world: competing perspectives on trade, money, and crisis, London and New York: Methuen & Co. 3.2The 'Sraffian' Approach to Trade Theory, pp. 4851.22. Jump up^Yeats, A., 2001, "Just How Big is Global Production Sharing?" in Arndt, S. and H. Kierzkowski(eds.), 2001,Fragmentation: New Production Patterns in the World Economy, (Oxford University Press, Oxford).23. Jump up^Bardhan, Ashok Deo, and Jaffee, Dwight (2004), "On Intra-Firm Trade and Multinationals: Foreign Outsourcing and Offshoring in Manufacturing" in Monty Graham and Robert Solow eds.,The Role of Foreign Direct Investment and Multinational Corporations in Economic Development.24. Jump up^McKenzie, Lionel W. 1954 Specialization and Efficiency in the World Production,Review of Economic Studies,21(3): 165180. See pp. 1779.25. Jump up^Jones, Ronald W. 1961 Comparative Advantage and the theory of Trarrifs; A Multi-Country, Muti-commodity Model,Review of Economic Studies,28(3): 161175. See pp. 1668.26. Jump up^Equilibrium, Trade, and Growth: Selected Papers of Lionel W. McKenzie, By Lionel W. McKenzie, Tapan Mitra, Kazuo Nishimura, Page 232.27. Jump up^Samuelson, P. (2001). "A Ricardo-Sraffa Paradigm Comparing Gains from Trade in Inputs and Finished Goods".Journal of Economic Literature39(4): 12041214.doi:10.1257/jel.39.4.1204.28. Jump up^Chipman, John S. (1965). "A Survey of the Theory of International Trade: Part 1, The Classical Theory".Econometrica33(3): 477519 Section 1.8.doi:10.2307/1911748.29. Jump up^Shiozawa, Y. (2007). "A New Construction of Ricardian Trade TheoryA Many-country, Many-commodity Case with Intermediate Goods and Choice of Production Techniques".Evolutionary and Institutional Economics Review3(2): 141187.doi:10.14441/eier.3.141.30. Jump up^Fujimoto, T. 2001The Evolution of a Manufacturing System at Toyota, Productivity Press. Fujimoto, T. 2007Competing to Be Really, Really Good: The Behind the Scenes Drama of Capability-Building Competition in the Automobile Industry, I-House Press.31. Jump up^Fujimoto, T. and Y. Shiozawa 2011 and 2012, Inter and Intra Company Competition in the Age of Global Competition: A Micro and Macro Interpretation of Ricardian Trade Theory,Evolutionary and Institutional Economics Review,8(1): 137 (2011) and8(2): 193231.

32. ^Jump up to:abCheng, Leonard K. (2001). Leonard K. Cheng, Henryk Kierzkowski, ed.Li & Fung, Ltd.: An agent of global production inGlobal Production and Trade in East Asia. Springer. pp.317323.ISBN978-1-4613-5647-9.33. Jump up^Ronald W. Jones; Henryk Kierzkowski (2000). S. Arndt; Henryk Kierzkowski, eds.'A Framework For Fragmentation' in Fragmentation and International Trade(PDF). Rochester, NY and Geneva, Switzerland: Oxford University Press.34. Jump up^J. S. Brown, S. Durchslag, J. Hagel III (2002). "Loosening up: How process networks unlock the power of specialization".The McKinsey Quarterly(PDF).35. Jump up^International Trade Centre (ITC)."Trade Map - Trade statistics for international business development".http://en.wikipedia.org/wiki/International_tradeThe World Trade Organization (WTO) is the only global international organization dealing with the rules of trade between nations. At its heart are the WTO agreements, negotiated and signed by the bulk of the worlds trading nations and ratified in their parliaments. The goal is to help producers of goods and services, exporters, and importers conduct their business.

https://www.wto.org/english/thewto_e/whatis_e/whatis_e.htmThe resultis assurance. Consumers and producers know that they can enjoy secure supplies and greater choice of the finished products, components, raw materials and services that they use. Producers and exporters know that foreign markets will remain open to them.

The result is also a more prosperous, peaceful and accountable economic world. Virtually all decisions in the WTO are taken by consensus among all member countries and they are ratified by members' parliaments. Trade friction is channelled into the WTO's dispute settlement process where the focus is on interpreting agreements and commitments, and how to ensure that countries' trade policies conform with them. That way, the risk of disputes spilling over into political or military conflict is reduced.

By lowering trade barriers, the WTOs system also breaks down other barriers between peoples and nations.At the heartof the system known as the multilateral trading system are the WTOs agreements, negotiated and signed by a large majority of the worlds trading nations, and ratified in their parliaments. These agreements are the legal ground-rules for international commerce. Essentially, they are contracts, guaranteeing member countries important trade rights. They also bind governments to keep their trade policies within agreed limits to everybodys benefit.

The agreements were negotiated and signed by governments. But their purpose is to help producers of goods and services, exporters, and importers conduct their business.The goalis to improve the welfare of the peoples of the member countrieshttps://www.wto.org/english/thewto_e/whatis_e/inbrief_e/inbr00_e.htmhttps://www.wto.org/

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