Mercantilism And International Trade Theories

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LITERATURE REVIEW Historically, economists made the effort to advance several theories that were used in explaining the trend of international trade. The theories provided impute to other readers in understanding how the global trade was involved. The traditional trade theories which are well known as classical trade theory provide an insight in regarding country to country trade relations. From the twentieth century, economist identifies new theories that include some new features and present a new trade relation that involved firms rather than counties. These theories are referred to as neo-classical economist. Furthermore, after the WWII there exists a new group of economists that develop their theories and relate more to the macroeconomic…show more content…
The Mercantilist ideas associated with the rise of the national state in Europe in 16th and 17th century. The main idea of mercantilist was bullionism which is a way to believe that wealth and power of a nation were determined by its stock of precious metals (Froyen 2013: 51). Furthermore, in coping with the bullionism ideas countries were attracted to advance more export promotion procedures such as the imposition of import duties and provision of export subsidies in order to earn gold and silver which were the precious materials through foreign trade(Ibid: 51). Also, mercantilist advocates that for a nation to be strong and powerful government need to intervene to the market to ensure the promotion of more export and limitation of imports. In which a country with more gold holding represent an increase in the flow of goods and services in an economy to satisfy human wants which will show an increase in living condition of people in the country. Generally the mercantilist theory stresses that the more accumulation of silver and gold the higher the wealth level of a country will be determined (Carpenter and Dunung 2011: 58). Regardless of the ideas of the mercantilists for the measurement of the wealth of a country, in a current situation the wealth of countries are measured through the availability of factor of production and natural resources available for the…show more content…
Additionally, the classical advocates for a free market in the absence of the government regulations for the perfect competitive to exist in the market so as to promote trade. Also, Classical identifies that with the increase in a factor of production and advanced in the technological process will allow for the increase in wealth of nation (Ibid: 51). Furthermore, the main concern of the classical economists was about a surplus of the economy in regarding its formation, its distribution among different classes in the economy and its utilization (either luxury or for investment). The classical focus more in favouring investment as the best way for surplus utilization since in the long run it can facilitate into expansion in capital formation hence ‘wealth of a nation’ (Felderer and Homburg 1992:

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