Chapter 1 The positive theory of international trade The theory of international trade is one of the oldest subfields of economics. This chapter provides an overview of the present state of positive trade theory concentrating on developments at the same time it draws attention to the continuity in the development of the subject. It discusses the classical paradigm as a set of assumptions under which trade is limited to final commodities and markets are undistorted and characterized by constant returns to scale and perfect competition. Nowadays theories are motivated by certain key features of real world trade: the vast exchange of raw materials and commodities that require further processing before being consumed the large volume of intra industry trade and the importance of the size of markets. These extensions in analysis have been generally made without throwing away building blocks found in the earlier literature. Extensions of the simple models of production within the classical paradigm have broken out of the traditional two by two mold to analyze the importance of joint production complementarity among factors and general properties in higher dimensions. Earlier work on simpler trade models has proved of value in all these extensions.