ABSTRACT
This chapter introduces the basic concepts of the theories of international integration and international production, which provide the theoretical framework. Trade theories are theories that are developed in an attempt to explain trade motives, underlying trade patterns and benefits that are derived from trade between nations. A basic understanding of these factors enables individuals, individual firms and governments to determine better how to act for their own benefit within the trading system. The theories of international integration are primarily based upon the concepts of the theory of Customs Unions. Trade-creation is a union-induced shift from the consumption of higher cost domestic products in favour of lower cost products from the partner country. The host country must also possess some locational advantage to attract investment, which will serve the market of the host country, or use it as an export base.
