Classical International Trade Theories

Based on that, the classical international trade theories have been divided into the following categories:

Absolute Utility Theory:
It's among the oldest international trade theories. This theory is based on the trading exchange that depends on the production of commodities that are characteristics of a certain state with unlimited advantages. Yet in reality, it's can't be achieved due to the existence of a lot of developing and weak states that lack this utility in producing any commodity.

Relative Utility Theory:

This theory defends the international specialization and the trade freedom, in addition to the removal of restrictions on the international exchange. Yet, it's also difficult to achieve this theory due to the difficulty in transforming the production elements among the states. Where, the rise in the costs of transformation processes and the technological changes lead to the lack of this relative utility in producing the commodity that a certain state enjoys.

Reciprocal Demand Theory:

This theory of the classical international trade theories has emerged in the middle of 19th century. Such theory has refuted all theories that have been approved previously, and focused much more on the offer. As a result, the reciprocal demand theory came to focus further on the productive capacity among the states as a replacement for production costs. In addition, the concept of the international barter ratio and the extent of demand significance in determining the ratio of international exchange have expanded. Therefore, the developing states can gain additional benefits from the advanced states due to the higher standard of their income and the hugeness of their demand. Yet in reality, the gains of the advanced and major companies are significantly greater compared to the developing states.