“Identify and Explain Carefully Four Sources of Gains from International Trade. Do You Associate One or More of These Sources of Trade Gains with the Underlying Economic Characteristics of Countries That Trade with Each Other?”

There are multiple causes of trade that are discussed in terms of gains from trade. Following World Trade Report (WTR) (2008) categorisation, there are gains from trade which result from trade in accordance to traditional theories of trade, such as Ricardian model and Heckscher-Ohlin (H-O) model, from trade according to “new” trade theories, which focus on economies of scales and imperfect competition, as well as from trade in accordance to “new-new” trade theories, which explores the gains from productivity. In addition, WTR (2008) points out that there are also dynamic gains from trade such as knowledge spill-overs and the fact that trade can accelerate economic growth.
The essay will focus only on four sources of gains from international trade, namely, gains from specialisation based on comparative advantage, benefits of economies of scales, increase in range of goods available to consumers and knowledge spill-overs. The paper will stress that there are some restrictions on how those gains are achieved and whether every country can actually achieve them. The paper concludes it is possible to spot these gains in current international trade relations associated with economic characteristics of the countries’ that trade with each other.
The most common and well-understood gain, representative of traditional trade theories, is a gain from specialisation. There are two theories that support the fact that gains from specialisation are strongly encouraged by international trade, and from one of them are another three theories derived. From the former ones, two different types of gains from specialisation can be distinguished. That is to say, there is gain from specialisation that follows from differences in technology, represented by Ricardian trade model, and another that follows from differences in factor endowments, represented by H-O model (Krugman and Obstfeld, 2006) and supported by Stopler-Samuelson theorem, Rybczynsky theorem and the factor-price equalisation

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