ABSTRACT
This chapter introduces the basic concepts of the theories of international integration and international production. The theories of international integration combine elements of freer trade with elements of greater protection. 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. Mercantilism, which was popular in Western Europe in the late seventeenth and early eighteenth century, was based on the assumption that nations should be responsible for the transfer of goods between nations in order to increase the wealth of each individual nation. The classical theory of trade, which rests on the doctrine of comparative advantage superseded the theory of mercantilism at the beginning of the nineteenth century. Whether a customs union is economically beneficial to its member countries depends, amongst other things, upon the two concepts of trade-creation and trade-diversion.
