Introduction

The pure theory of international trade is concerned with the fundamental relationships which exist between two trading bodies. In one sense it is a branch of exchange theory, but because the exchanging bodies are, on the whole, countries, additional relationships come into play. It was often debated in the past – although the distinction is readily accepted today – as to why we should have a theory of international trade, i.e. whether there is a distinction between inter-regional trade and international trade. The usual reasons given for distinguishing the two are: (i) international immobility of factors of production; (ii) independent monetary systems; (iii) the existence of political boundaries and controls which go with them; and (iv) greater geographical differences and greater transport costs. However, each of these is a matter of degree only.