There are several reasons practical as well as pedagogic for evolving a separate theory of international trade and consequent development of a distinctive branch of economics called international economics dealing with issues and problems of the international economy. International trade follows different laws of behaviousr form those of domestic trade. Therefore a separate theory is inevitable. These reasons in a way tend to point out the distinguishing attributes of international transactions following kindleberger we may enlist the important features of international trade as under.
Immobility of factors
The degree of immobility of factors like labour and capital is generally greater between countries than within a country immigration laws citizenship requirement etc. often restrict the international mobility of labour. International capital flows are prohibited or severely limited by different movements. Consequently the economic significance of such mobility of factors tends to equality within but not between countries. For instance, wages may be equal in Mumbai and pane but not in Mumbai and London. Accounting to hared it thus follows that domestic trade consist largely of exchanges of goods between producers who enjoy similar standards of life, whereas differing standard evidently the principles which determine the course and a nature of the internal and intimation trade are bound to be different in some respects at least,
In the context, it may be pointed out that the price of a commodity in the country where it is predicted tends to equal its cost of produiotn. The reason is that if in an industry the price is higher than its cost resources will flow into it form other industries output will increase and the price will fall until it is equal to the cost of production conversely resources will flow out of the industry output will decline. The price will go up and ultimately equal the cost of production.
Therefore among different countries resources are comparatively immobile hence there is an automatic influence equalizing price and costs. There may be permanent difference between the cost of production of a commodity in one country and the price obtained in a different country for it. For instance the price of tea in Indian must in the long run be equal to its cost of production in India. But in the U.K the price of Indian tea may be permanently higher than its cost of production in India in this way international trade differs from home trade.
To the extent that there is difference in factor mobility and equality of factor retunes, costs and price of goods predicted and exchanged between countries as compared to those within a single country international trade will follow different laws. A distinct set of the over will thus be needed to analyze international transactions.