Trade theory

Trade theory is a label for theories that concerns trade between countries. In trade theory, researchers seeks to find answers to questions such as whether the welfare of a country could increase by overseas trade.

Trade theory also provides answers to whether everyone can benefit from overseas trade or not. Trade theory outlines whether there should be free trade or tariff barriers that hinder trade between different countries. Early trade theory developed by mercantilists argued that countries could increase their wealth by exporting more than they imported. Mercantilists argued that it was the amount of gold in a country that decided how rich the country was.

Later trade theories suggest that exports should be equal to imports, the more we trade with other countries, the more wealth we have in the country. With a free overseas trade, a country have a higher gross domestic product compared to a country that dont trade with foreign countries.