Different Trade Theories Developed Overtime.

Trade Theories developed overtime First trade theory was developed during the period 1500-1800 by the group of writers called mercantilists who found that with the help of foreign trade, nation can regulate its domestic and international affairs. According to the mercantilists, if a country could achieve a surplus of exports over imports then it will raise the domestic output and employment of the country. But, later on this theory was not successful to hold as …

…economist Eli Heckscher and Bertil Ohlin formulated their own theory called factor-endowment theory. In this theory Heckscher and Ohlin states that comparative advantage is explained exclusively by differences in relative national supply conditions. This theory focuses on the role of nation's resource endowments such as labor and capital as the key determinant of comparative advantage. This theory explains what Ricardo didn't explain in his theory that's why this theory holds as a true trade theory.