International business theories

Classical trade theories debate the kinds of economic activities in which different national economies should specialise and the extent to which this should be determined by government or market forces. Despite the existence of well-trodden trade routes like the Silk Road running between East and West Asia, general suspicion of merchants would continue for many centuries. The strength of Smith’s theory is his idea that efficiency goes hand-in-hand with specialisation achieved through a “division of labour”. This applies to both domestic economics and international trade. The English philosopher John Stuart Mill’s main contribution to international trade theory was the infant industry argument he formulated at the same time as German economist Friedrich List. In Mill’s opinion, the one time government intervention is justified comes when a country needs to protect industries that are brand new hence vulnerable to foreign competition. The leading international business theories over the past half-century have focused more on corporate behaviour than on national economies.