Introduction

International trade and Foreign Direct Investment (FDI) equity flows are the two primary methods in which international business occurs and are amongst the most substantial drivers of present time globalisation. With consecutive rounds of multilateral dialogues at the World Trade Organisation (WTO), barriers to trade globally, have been done away with significantly. Likewise, the relaxation and liberalisation of developed countries’ capital markets during the 1980s has brought about a brand-new age of global capital mobility whereby Foreign Direct Investment is a primary and vital facet to trade globally. Both experiential and theoretical frameworks have incidentally thrived to explicate and predict these patterns in international business, as well as the determinatives and affects of International Trade and FDI flows for both the host and home countries.

International Trade is the exchange of capital, goods, and services across international borders or territories (dictionary.reference.com).

FDI

Foreign direct investment refers to the long-term engagement of a nation “A” into nation “B” for example. It normally requires involvement in expertise, know-how, joint-venture, management and transfer of technology, etc. There are two forms of Foreign Direct Investment: inbound FDI and outbound FDI, bringing about either a positive or negative net FDI inflow and stock of FDI equities, which is the total figure for a given period of time. It is important to note, however, that direct investment does not include investments made by means of purchasing shares.

Specialisation

Specialisation is the focus of labour in specified, limited duties and functions. It is the name ascribed to the prevalent system of economic consumption, production, and interlinked socio-economic progression and processes, in most industrialised nations ever since the late twentieth century.

In fact, trade exists as a result of specialisation and the division of labour, where most workers focus on a limited facet of production and trading, during the process, for different trade goods. Trade exists between various nations and trading blocs because different industries in diverse countries and regions globally have a comparative advantage in the manufacturing/production of certain tradable commodities/goods, or because different countries’ sizes permit for the benefits of mass production. Intrinsically, trade at market prices amongst different countries/regions benefits both partners involved in the trade exchange.

International Trade Theory

Adam Smith (1723-1790) was a prominent Scottish economist and political thinker whose famed work “Wealth of Nations” (1776) set the pitch for work on economics and politics for many individuals and institutions even today. This was, as a matter of fact, the first extensive attempt to examine the nature of capital, the development of industry and the effects of large-scale commerce in Europe.

Adam Smith’s fundamental argumentation was that people should be free and able to engage in their own private economic interests as much as possible just as long as they do not break the rudimentary rules of justice. In this manner, Smith believed, they would do far more good to advance and promote the public’s welfare and interests, more than if the same people were to attempt to assist the public on purpose. Smith named this the “invisible hand” of the market, though everyone is performing in their own self-interest, they are led to accomplish the good for all like an ‘invisible hand’ of economic powers. Hence, outside intervention will unavoidably induce calamity. This later became renowned as “laissez faire” economic policy (economyprofessor.com).