Standard Theory of International Trade

This chapter presents the Standard theory of international trade, which explains the relocation of industry from the USA and Western European countries to Asia, South America and elsewhere in the 20th century. In essence, the Standard Theory of International Trade underpins the developed cascade effect, allowing lower value-added industries to be relocated to other regions of the world when new higher value-added industries emerge. The cascade effect can operate as long as the world is unevenly developed, with a kind of staircase forming between countries’ development, which always allows for the transfer or relocation of an individual industry downwards. Of course, it should be noted that the industry itself is not necessarily relocated in its entirety. This effect can also be referred to as the opportunity cost effect.

Ex. 1‑14 The problem of declining resource quality

Keywords: resource, standard, production

Ex. 1‑15 Impact of cost changes on comparative advantage

Keywords: costs, comparative advantage

According to standard international trade theory, countries that want to change their dominant specialisation can themselves proactively invest in improving human resource competencies, thus building up the potential of resources in higher value-added industries while seeking to attract foreign investment in higher value-added industries.

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