Nowadays there are many trade theories and they all have different impacts. That is why it is important to compare such approaches as absolute advantage, comparative advantage and Heckscher-Ohlin factor endowment. In addition, it is necessary to explore cultural, political, physical, economical and financial impediments for implementing the absolute advantage theory.
The difference between these systems of rules and principles is based on the benefit that countries gain in the process of international cooperation. For example, absolute advantage of one country is not always beneficial for another while comparative advantage is based on mutual advantages. According to factor-endowment theory, a nation will export the product that uses a large amount of its relatively abundant resource, and it will import the product which in production uses the relatively scarce resources (Carbaugh, 2007). Therefore, the aforementioned hypothesis is also beneficial for both countries if their abundant or scarce resources are different.
Theory by Adam Smith
Absolute advantage theory, introduced by Adam Smith, is applied almost by all countries. Nevertheless, there are also certain impediments, which can easily prevent this trade theory from successful application. Such impediments may be economic ones like the lack of transparency in transferring capital across national boundaries. There may be as well political impediments if governments of both countries are conflicting. Sometimes countries apply embargo in order to prevent enemy countries from having access to advanced technologies or to put political pressure on them by economic means (Okun, Hillman, Bragg, Miller, & Koplan, 2003).
Moreover, some countries face different financial barriers while taking domestic loans in order to finance international trade. There are always physical constrains to advantage theory. Even though the states are able and have all necessary resources to conduct international trade they can face certain geographical problems. Long distance, oceans or even mountains are some of the most wide spread physical constrains of international trade. In fact, many of such impediments occur because of the culture differences.
All in all, it is possible to compare trade theory from the point of benefits. Thus, advantage theory can be beneficial for one party, while comparative advantage and factor-endowment theory to both countries. Additionally, there are also some economic, political and cultural barriers to implementation of advantage theory. Most of these impediments are caused of culture differences or the lack of effective political cooperation. Therefore, in order to utilize this theory successfully both participating states should create specific trade agreement.
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