Characteristics of the Modern Theories of International Trade Research Paper

Characteristics of the Modern Theories of International Trade - Research Paper Example Heckscher-Ohlin theory outlines the reasons for trade between countries based on the differences in resources. Comparative advantage in this case is dependent on the interaction between resources available in a certain country. According to this theory, the production technology influences relative intensity in utilization of different production factors. The theory presumes some factors in production of different goods and the implications when two countries involved in trade produce similar items (Gandolfo 1-98). This theorem explains the trade patterns with emphasis on variation of quality defining the variation in requirements. This theory has enhanced specialization where a country exports products that it  can produce rather than the products that are unsuitable for production. As a result, the countries involved will benefit from the trade within the international business environment (Gandolfo 1-98). The theory outlines two factors influencing the distribution of income. Firstly, immediate transfer of resources from a country without costs is impossible. Secondly, the difference in changes of production mix in relation to the production factors’ demand varies depending on the  industry. Another characteristic of the theory is that it points out that capital and territory are examples of specific factors, while labor acts as a mobile factor (Gandolfo 1-98). In modern business environment, any country with less land and high capital abundance is characterized by an increase in the manufactured goods and decrease in the food products because of the increase in the marginal productivity. Two countries in trade partnership have an integrated economy, and failure of one country to trade translates to equality in rate of production and consumption (Gandolfo 1-98). This theory outlines curve of relative supply that results from production possibility. On the other hand, the theory