This modern international trade theory is an evolutionary product of economic thought. The development of the theory of commerce actually began since the mercantilism then to the classical theory proposed by Adam Smith and David Ricardo who later pioneered the emergence of modern international trade theory as well as examples of demand theory. The emergence of modern international trade theory is due to a sharp critique of the classical economic theory that emerged at the time of depreciation in the 1930s.
Modern international trade theory addresses the weaknesses of classical theory as well as the theory of exports by experts. Broadly speaking, the emergence of modern theory is an effort to develop the field of science. As can not be denied is the development of science and technology that will make people think to get the theory more relavan and can digunakam all time. Here are 4 modern international trade theories according to experts, see more.
1. Hecker-Ohlin Theory (Proportional Factor Theory)
In this theory Hecker-Ohlin (H-O) explains the pattern of trade well where each country tends to conduct its international trade ie in the form of exports as well as in the theory of international trade by experts. Where goods are exported using a factor of production that is relatively abundant and intensive. According to them that a country will conduct international trade with other countries, because the megara has a comparative advantage. Namely excellence in the field of technology and also factors of production.
Modern H-O theory uses two curves, namely isocost and isoquan kurba. The isocost curve represents the same total cost of production. While the isoquant curve represents the total quantity of the same product. In economic theory the isocost curve and the isoquant curve will be tangent to the same point refer to also the cause factors of inftlation. The optimum point will indicate a certain amount of cost will get the maximum product or with minimal cost will show how many products can be produced.
Here's an analysis of Hecker-Ohlin's theory as a mederen international trade theory:
- The price or cost of producing a product will be determined by the amount or proportion of factors of production owned by each country.
- Comparative Advantage of a product owned by each country will be determined by the structure and proportion of its products.
- Each country will specialize in the production and export of certain goods because the country has abundant production factors and low cost to produce it.
- Conversely countries that do not have abundant production factors and expensive cost to produce the goods, then the country will take a decision to import goods.
- The weakness of H-O theory is that when there is a country that has the same production factor and then the price of goods produced will be relatively the same so that international trade can not occur refer to the inflation impact.
2. Leontief's Paradox (Theory of Wassily Leontief)
Wassily Leontief was a pioneer in the input-output matrix Analyst finding a fact through his empirical study in 1953 on the structure of foreign trade (exports and imports). This theory contradicts the H-O theory put forward by Hecker-Ohlin, thus making this theory known as the Leontief Paradox see also the example of skilled labor. Based on this, some trade economists conduct further research and argue that the paradox of leontief can be caused by several things like below:
- The intensity of opposite production factors.
- Tarrif and Non Tarrif Barier.
- Differences in skill and humam capital.
- Differences in natural resource factors.
On the other hand this leontief paradox also has advantages that if a country has a labor force such as exemplary educated labor, then its exports will rise. Conversely, if a country has a small amount of labor, the amount of exports will be less.
3. Opportunity Cost Theory
Opportunity Cost theory is described as Production Possibility Curve (PPC) which shows the combination of output produced by a country through a production factor in Full Employment. PPC will depend on the Opportunity cost used by yakno PPC Constant Cost and PPC Increasing Cost.
4. Over Curve / Reciprocal Demand Theory (OC / RD)
This theory was introduced by the English economists Marshall and Edgerworth, they describe this theory in a curve that shows a country's willingness to offer or exchange a product of goods or services with other goods or services according to all possibilities, and various prices offered the characteristics of conventional economics. The surplus of the offer curve is that each country will get the benefit of the international trade done. Namely ditunjullan with the achievement of a higher level of satisfaction.
The determination of the price of a product is determined by the influence of the factors of production on demand and supply and the technological factors used as the example of the liberal economic system. Ultimately it will determine the Comparative Advantage and Trade Pattern of a country. The quality of human resources and the technology resources used are the two decisive factors in international trade competition. This theory is the best theory to apply in its use in modern intrnasional trade.
In principle, the international mederinal trade theory is based on two main factors as well as the advantages of the command economy system. The two factors are demand and supply where the difference between the two things is then that makes the international trade between two countries. Demand can occur because of differences in taste, it could be that domestic goods production is not in accordance with the existing market tastes, causing a country to conduct international trade with other countries. Or it could also be due to an offer from other countries who want the item because it has different amount and quality.
Modern international trade theory proposed by the experts above is part of the development of science in the field of economics. This is a benchmark that the changing times can cause changes in views and theories held. Therefore, to be able to equip with the era of modern economy should be put forward a theory that can accommodate modern thinking. So then this theory can still be used until later.
That's what 4 modern international trade theories say by experts. Of course more open your understanding of the international trading system used in the world economy. Due to the proper use of the theory then it is expected that a country will be able to achieve export self-sufficiency in abundance. So it will certainly be very influential on the progress and growth of the global economy. Hopefully this article can be useful.
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