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Theories of the international business

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There has been a rapid growth of international trade since the 1950's. It has been growing twice as fast as that of world output (or GDP). The result is an increased openness of countries and therefore the interpenetration of national economies.

On bilateral agreements (between two countries) it is referred to as multi-lateralism, with the regionalization of the economy and the establishment of free trade areas, or business meeting very few barriers. The EU is a leading example.

However, some dependence of national economies into the global economy is a result of this development. Thus all trade (imports and exports) of goods and services between nations are referred to. Numerous theories have since emerged, explaining the interest of the nation in participating in free trade, or opposing it.

These theories have two aspects: a large diversity which translates into the inevitable opposition between the different currents of economic thought, and a new application which does not necessarily invalidate the previous associations coupled to a common fund which is manifested by the similarity of the issues (how are prices determined in international flows or what is the effect of international trade on national economies, for example).

It might seem a strange coexistence of very different theories, but all having once been verified, the author of a new contribution is to propose a vision of the eclectic type, based on elements common to all the tested analysis. To describe the approach of most authors briefly, one may refer to the famous formula of B. Lassudrie-Duchene: "International trade is a demand for difference, where everything turns out the same, and it is useless to discuss anything".

Indeed, the difference between nations explains the interest they have in exchanging trade to change the situation to an open economy. What are the main theories that have ever governed or explained in the subsequent behavior of economic players in the international trade?

Mercantilism is the economic mainstream from the sixteenth and seventeenth centuries that wealth comes from trade. At that time, the wealth of a country merged with that of the state (time of the Absolute Monarchy). The interest of the King to join was so because the merchants led him to intervene in the industrial and commercial life. It promotes exports and limits import to a minimum to encourage new inflows of gold and silver, that were the signs of power.

Colbert calls this "war of money" that the trade would be a zero sum game where gains of each would be the exact counterpart of the losses of others. The goal is then to capture the largest number in the stock of precious metals circulating, through international trade.

Mercantilism was used as a precursor to liberalism, promoting trade expansion and a foil to the Liberals, who, like the Physiocrats and Adam Smith, will slay the royal intervention in the economy.

Today the term is sometimes used to designate commercialism of the authors who do not refuse a priori control of their country's foreign trade (Keynes) or policies that reintroduce protectionist trade practices in imports and free trade to the export to ensure a trade balance surplus.

Tags: International business; theories; mercantilism

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