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Neoclassical theory of trade, rooted in the principles of classical economics, emphasizes the role of comparative advantage in international trade. It posits that countries should specialize in the production of goods and services for which they have the lowest opportunity cost, leading to increased efficiency and trade benefits. This theory assumes that markets operate under perfect competition and that factors of production are mobile within countries but not across borders. Ultimately, it suggests that trade can enhance overall economic welfare by allowing countries to leverage their unique resources and capabilities.

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