Which theory will explain international trade?

What is the theory of comparative advantage and how does it explain the basis for trade between nations?

• Answer:

  It doesn't. In general, nations don't trade - individual companies do. The basis for trade between nations is profit on the part of buyer and seller. And what benefits the individual buyers and sellers may not benefit their nations. Comparative advantage is a very simplified theory of why trading between nations are actually advantageous to the nation and not just to the individuals doing the trading. It explains a portion of the international trade, but far from all of it. http://www.princeton.edu/~pkrugman/deardorff.pdf http://www.econlib.org/library/Topics/Details/comparativeadvantage.html And, like the rest of classical economic theory it is oversimplified, perhaps to the point of being dangerously misleading http://www.huffingtonpost.com/ian-fletcher/the-theory-thats-killing-_b_846452.html http://delong.typepad.com/sdj/2010/12/what-do-econ-1-students-need-to-remember-second-most-from-the-course.html