ABSTRACT
The neoclassical theory of international trade is one of the best-established approaches to understanding economic transactions between states. The Ricardian notion of comparative advantages of production has dominated thinking over the last 200 years. This way of explaining international economy was later improved and extended through the Heckscher-Ohlin theory of factor proportions. Samuelson in turn, elaborated on this theory, which was, during the last decades of the twentieth century, further modified when Helpman, Krugman and others (Fujita et al. 1999; Helpman and Krugman 1985; Krugman 1990, 1991) introduced concepts such as intra-industry trade, and increasing returns to scale.
