Globalization refers to the international integration process that arises from interchange of products, world views as well as ideas (Boudreaux, 2008). This element has been extremely significant in the definition of various issues that have arisen. It has been extremely significant in the development of various national policies that have been useful in definition of business among people in the world. One of the main policies that have been developed is Free Trade. This is a policy through which a government allows imports and exports for all countries without tariffs, subsidies as well as quotas. Free trade policy being extremely fundamental in the world economy, it is defined by certain theories as well as economic inclined arguments.
Absolute advantage theory
Absolute advantage is a key definition of free trade. The absolute advantage theory argues that if a given nation is an efficient producer of some products than another free trade will make the latter import from the earlier. This theory benefits the nations involved in various ways. One of the benefits is that it becomes less expensive for the importing countries to purchase the products that they require in a lower price than the cost they would incur in manufacturing the product. The foreign nation benefits in the sense that it will get a reliable market for its products. This extends advantage to the world since the country becomes one of the most efficient producers in the world (Chang, 2008). Therefore, the nation gets the ability to maximize on global output. This means the nation will be entrusted global distribution of various commodities.
However, the theory has some demerits to both the foreign country and the entire world. The first disadvantage is that it becomes extremely difficult for other countries with low economic productivity to be global traders. They are only supposed to operate within their domestic markets. This bars lowly developed countries from accessing equal global economic share. This means that there are various countries that will benefit massively as others flop in performance in the global market (Gallagher & Robinson, 1953).
Theory of comparative advantage
The comparative advantage theory is extremely fundamental in the explanation of free trade as a result of globalization. Most countries that allow free trade reap extensive benefits since they interact with each other in the trade. In most cases, there are exclusive benefits that each of the parties gather from the interaction. However, comparative advantage borrows a lot from the Absolute advantage theory (Prasch, 1996). However, this theory tries to evaluate how each of the parties involved in the trade benefits.
Comparative advantage campaigns for the exclusive merit of sharing of opportunities among trade partners. One of the opportunities that come along with the trade is that there is a platform over which individuals can share information with each other. This theory advocates for the benefits that come along with sharing of information. Development comes with exclusive investment in information which is very vital for development (Koch, 1921). Among the major elements of exchange that comparative advantage theory pushes for is exchange of information among parties involved.
The theory stands for a point where all nations shall be joined together for excellent trade. Globalization which is the main factor towards free trade had an intention of the whole world being united for a common purpose of trade. Therefore, the theory of comparative advantage is meant to ensure that all countries involved have reliable approach towards trade requirements for each of the countries (Young, 2009). Therefore, they will be exclusive concern for the benefits that each of the nations involved gain from each other. Comparative advantage may be meant for merits that are transferable among all the parties involved in the trade. There is exclusive requirement of cooperation so as trade partners may assist each other if any economic need arises among the nations involved.
Also, comparative advantage aids in the explanation of the perfection that may be required in the trade. It allows use of common rules that gauge trade among partners. Although, the trade is termed free, some countries may take advantage of the rest of the countries involved in the trade. Some of the activities that these countries may opt to undertake may be exclusive dangerous to the global economy. However, the comparative advantage theory push for equality in trade and no nation is supposed to take advantage of its partners in the trade. Therefore, it is upon trade partners to come up with useful principles that will assist them in coming up with excellent trade values (Gallagher & Robinson, 1953).
Theory of international trade
This theory may be defined to consist both absolute advantage and comparative advantage theories. However, this theory may contain some uniqueness that is not found in either comparative advantage theory or absolute advantage theory. However, international trade theory exclusive influences free trade. The main element through which the theory influences free trade is on the issue of international rules that govern trade (Weder, 1995). Every country has a set of rules through which it chooses to govern free trade. However, all the nations are bound by international rules that ensure that the globe has access to equal sets of rules of trade (Koch, 1921). This means there are chances by which various countries may opt to apply certain rules that may discourage trade with the rest of the world.
Ricardo’s Comparative Advantage Theory and argument
David Ricardo stated that with all other factors held constant a country tends to specialize in one object for production as well as for export. According to him, the country aims at reaping maximum comparative cost advantage with minimum comparative disadvantage. This theory is based on some assumptions with the main ones being existence of perfect competition in the trade as well as evaluation of cost of production in terms of labor. He recognized labor as a homogenous commodity and movement of goods among countries should not be hindered by any element (Ricardo, 1911).
Ricardo’s argument on Free trade is based on excellent definition of how international trade should work. In his analysis, Ricardo employed exclusive examples that defined how certain countries traded with each other on the basis of proper terms. Free trade should remain free on the principles that it offers to the individuals involved. He argued that all benefits in a trade should be shared equally (Ricardo, 1911).
Free trade is major issue following the exclusive influence of globalization. It is a form of trade where all parties involved are defined under equal rights even though they operate in different nations which have different rules. Excellence of the trade is defined by critical principles as well as policies that are defined in various theories and arguments. The most common theories used in the definition of free trade are absolute advantage theory, comparative advantage theory, international trade theory, as well as Ricardo’s theory and argument.
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Chang, H. (2008). Bad samaritans: the myth of free trade and the secret history of capitalism. New York, NY: Bloomsbury Press.
Gallagher, J., & Robinson, R. (1953). The Imperialism Of Free Trade. The Economic History Review, 6(1), 1-15.
Koch, F. M. (1921). On the theories of free trade and protection; a survey and a criticism,. London: P.S. King & Son, Ltd..
Prasch, R. E. (1996). Reassessing The Theory Of Comparative Advantage.Review of Political Economy, 8(1), 37-56.
Ricardo, D. (1911). The principles of political economy & taxation,. London: J.M. Dent & Sons;.
Weder, R. (1995). Linking Absolute And Comparative Advantage To Intra-Industry Trade Theory. Review of International Economics, 3(3), 342-354.
Young, M. (2009). Free trade. Detroit: Greenhaven Press.