ABSTRACT
This chapter presents the core theories, evidence, and debates around trade and globalization. The principle of economic specialization can be extended by expanding “the market” beyond a country’s borders to include other countries. It is for this reason that Smith advocated not only a system of free markets but also free trade among countries, such that exchange in international markets is not regulated or restricted by the government. Economists often make a distinction between countries that are thought to be more suited for labor-intensive production processes, such as stitching clothing or making handicrafts, and others that specialize in relatively capital-intensive production, such as the manufacture of airplanes or automobiles. Specialization may also lock a country into a production pattern that eventually becomes inefficient, making change difficult.
