The Theory of International Trade

Free Trade

The concept of that all countries will be benefited from the international, no matter what the circumstances are, that was one of the facts that all economists have been talking about. The theory of international trade relied on comparative advantage; the well-known feature that advantages countries took a part in the commercial trade. But the traditional theory of international trade, forced some of restricted conditions to the analysis of the international trade, for example, the concept of perfect competition and constant returns.
Most of the economists believed that they can come up with conclusions about the international trade through reporting to perfect competition (Richardson, 1990, p. 108). However, in reality this assumption is contradicted in most of the cases. The markets majority are not actually in perfect competition, in fact they are in imperfect competition where monopolistic competition, oligopoly and monopoly took place. As a result, firms reach economies of scale. Returns were highly increased, much more than the volume of production growth (Burnete, 2007, p. 137).
The new trade theory has underlined some reasons that required the governments intervention in the international trade to fit its purpose of being advantageous for all countries (Krugman, 1989, p. 2).The question that Krugman (1987) asked in his article is Free Trade Passé? Sounds like a challenge directed to the traditional trade theory, underlying a basic change of the concept and questioning about the necessity of concluding a new theory that fit to the characteristics of the current international trade (Burnete, 2007, p. 136).
Perfect competition
The common understanding that the world running on perfect competiti...

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...trategic Trade Policy, in P. Krugman şi A. Smith, ed. 1994. Empirical Studies of Strategic Trade Policy. Chicago: University of Chicago Press, pp. 1-10. Krugman P. (1987) Is Free Trade Passe?, The Journal of Economic Perspectives, vol. 1, issue 2, pp. 131-144, available at: http://bss.sfsu.edu/jmoss/resources/Is%20Free%20Trade%20Passe.pdf.
Krugman, P. (1981) Intraindustry specialization and the gains from trade, Journal of Political Economy, 89, pp. 959-73. Available at: http://www2.econ.iastate.edu/classes/econ655/lapan/Readings/Intraindustry%20Specialization%20and%20the%20Gains%20from%20Trade%20Krugman.pdf.
Richardson, J.D. (1990) The Political Economy of Strategic Trade Policy, International Organization, 44, pp. 107-135, available at: CES Working Papers 746
http://www.jstor.org/discover/10.2307/2706811?uid=3738920&uid=2129&uid=2&uid=70&uid=4&sid=21101011675713.