ABSTRACT
This chapter focuses on the positive part of Adam Smith's theory of foreign trade. Modern trade theory is divided into a normative part and a positive part. The normative part is concerned with the gains from international trade, while the positive part deals with how trade patterns will develop. The chapter explains how trade patterns develop. Transport costs play a very important role and have a great effect on foreign trade. In economics, international trade is portrayed as an international division of labour, whereby each country specialises in the production of certain commodities. Foreign trade is integral to Smith's theory of economic development and cannot be considered without it. The basis of his theory of economic development is capital accumulation, on which all economic developments are dependent. Capital accumulation itself is restrained by other factors like technological development, population growth and economic wealth in a circular causation.
