This paper reviews the various theories of trade which explains that goods produced competitively and more efficiently in a given country are exported. As a corollary, it means that those products that cannot be produced efficiently at home should be imported. The purpose of trade theory is to explain observed trade. That is, we would like to be able to start with information about the characteristics of trading countries, and from those characteristics deduce what they actually trade. This is why we have a variety of models that postulate different kinds of characteristics as the reasons for trade. It also explains the effects of trade on the domestic economy. Its purpose is to evaluate different kinds of policy. These trade theories include classical trade, neo-classical trade and new trade theory of trade
