ABSTRACT

Why do countries trade with one another? What determines the terms on which trade between countries is conducted in the world marketplace? These two questions are perhaps the most fundamental to be considered in any analysis of international trade, be it trade between developed and developing countries or trade among countries in either the developing or the developed world. These questions are of special importance in the context of economic development, since if there are ‘gains from trade’ to be had, the distribution of such gains between trading partners carries important implications for living standards and economic welfare within the participating countries.