Chapter 1.  Theories of international economics and business

• Mercantilism
• Adam Smith and Absolute Advantage
• David Ricardo and Comparative Advantage
• Standard Theory of International Trade
• Karl Marx and Communism
• Hekscher – Ohlin Theory
• Paul A Samuelson Theory
• Leontief Paradox
• Rybczynski Theory
• John Hicks and Progress
• Economies of Scale Theory
• Contemporary Business Internationalisation Theories
• Questions for Chapter Review
• Chapter Bibliography

Many theories try to explain and systematize information about the causes, origins, and benefits of international business. In this chapter, theories are systematized and described in a simplified language for the reader, starting from the first authors who studied international business to the most famous modern scientists. The first wave of written theories that laid the foundations for the development of education in the field of business was in the 18^th century, starting with Adam Smith and David Ricardo. The phenomenon of business internationalization was studied quite intensively in the 20^th century. Modern management scholars, like Michael Porter, have also actively contributed to enriching the understanding of international organizations, their strategies, the origins and causes of power. The attitude of scientists from the scientific works on this topic, over several centuries until now, has changed depending not only on the phenomena and events that took place, but also on the values and attitudes of the society of a specific period. For the sake of impartiality, even the theories of controversial authors such as Marx and the actual consequences of their implementation are included in this chapter.

For the reader who expects to receive specific advice and instructions on how to develop an international organization, while reading this chapter, it is very important to look at business as a phenomenon and try to understand how each of the theories could be applied, or explain a specific case imagined by the reader, in a specific industry or in a specific country. These theories explain and describe the basic laws by which many international companies have grown and developed. The theories also explain why today most international organizations that leaders in their industries are, come from the so-called Western countries, the United Kingdom, and the United States of America.

It is important for the reader to understand that even though the theories are a just few dozen years old, a hundred years old, or even 250 years old, their essential principles work and are applicable today. Only the technologies used are changing, which enable the better internationalization of business, based on which new industries are created, and the basis of which are the new needs of consumers, but the principles and laws of the international business organization itself in general remain the same.

 

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