International Trade Theory, International Business Video Lecture | International Business - B Com

hello student welcome to the lecture on
theories and policies of international
trade after this lecture we will be able
to learn the following objectives
understand international trade explain
the mercantilism theory of international
trade defined theory of absolute
advantage describe the classical theory
of international trade discuss on
Ricardo's theory of comparative
advantage explained ahead sir on Lin
trade model understand Porter's diamond
of national advantage explain the
evaluations of head Scotland theory of
international trade discuss on India's
international trade policy introduction
let's start with a brief introduction to
the topic theories and policy of
international trade it would provide an
introduction to the core of
international trade theory and policy
attention is paid to the use and
relevance of various economic models and
explaining international trade and
evaluating international trade policy
the main areas that would be covered are
the recharging model of comparative
advantage neoclassical production and
trade factor endowments and trade market
structure imperfect competition
and trade theory of trade policy
international trade traditionally
international trade consisted of traded
goods like textile food items spices
precious metals precious stones and
objects of art and various items across
the borders multinational organization
have emerged through the previous
century with footprints all over the
globe companies no longer limit
themselves to local markets they no
longer depend upon local resources it
presents in our no country can afford to
remain isolated form and not participate
in globalization today most of the
countries are party several bilateral as
well as multilateral traffic and
like GE TT general agreement on tariffs
and trade the which they regulate
imports and exposed to and from specific
countries merchants ilysm theory of
international trade mercantilism was a
16th century economic philosophy that
maintained that a country's wealth was
measured by its holdings of gold and
silver this required that the countries
to maximize export and minimize import
logic was transparent as the 16th
century policy make is that if
foreigners bought more goods from us
than we bought from them the forests had
to pay as a difference in gold and
silver and abling us to and last more
treasure mer catalyst pressed for
favorable balance of trade Bo T or
balance of payments Bo P as against the
unfavorable one in a way it is good
because currency appreciates with
mounting surplus on the Forex front and
the country was attract more foreign
capital infusion for this trending the
country's economy infrastructure etc
evaluation of mercantilism Theory
mercantilist writers have been lauded
and criticized in the literature on
foreign trade at least since humans
political discourses in 1752
mercantilist have been criticised for
everything from their views regarding
the gains from trade to this
self-promotion of the merchants rule in
society as being important theory of new
merchants ilysm my channel ism is still
invoke my chanceless policies are
politically attractive to some firms and
their worker as mercantilism benefits
certain members of society while the
supporters of these policies are known
as neo mercantilist of protectionist the
new mercantilist one higher production
through full employment and that every
industry produces and export of all
surplus
leading to favorable Bo T theory of
absolute advantage the
real wealth of the country consists of
goods and services available to its
citizen if any country can produce a
particular commodity more and more
cheaply than other countries it has an
absolute advantage natural advantages
climate area Resources principle of
absolute advantage to vividly illustrate
the principle of absolute advantage
suppose that there are two countries USA
and Japan producing two goods food and
cars using labor as the only input
complication and limitation there's
several carrots in the above analysis
some of which we discuss now absence of
absolute advantage it is frequently
argued that developing countries may
like the technology to gain an absolute
advantage in the production of any good
such that they cannot possibly compete
on the global market and benefit from
free trade more factors of production in
reality goods are produced using several
factors of production simultaneously
such as capital land and various types
of labor usually goods then cannot be
ranked according to absolute advantage
as the production is one country
requires more of one input and
simultaneously less of another input
then in another country absolute
advantage income and wages daniel
traveler systematically analyzes these
issues by combining the hash share or
lint model which technology differences
while taking into consideration the
empirically observed a home country bias
a consumer preference for domestically
produced goods / otherwise identical
imports classical theory of
international trade according to the
classical theory of international trade
every country will produce their
commodities for the production of which
it is more suited in terms of its
natural endowments climatic quality of
soil means of transport capital etc
types of course difference in production
economists peak about three types of
course difference in production they are
absolute cause difference Adam Smith in
his book Wealth of Nations argued that
international trade is advantageous for
all the participating countries only if
they enjoy absolute differences in the
cause of production of the commodity
which they specialize equal cost
difference Adam Smith in order to
strengthen his argument in favor of
absolute difference in cost pointed out
that trade is not possible if countries
operate and the equal difference in cost
instead of absolute difference Ricardo's
theory of comparative advantage Deborah
Chardo stated a theory that other things
being equal a country tends to
specialized in and exports those
commodities in a production of which it
has maximum comparative cause advantage
or minimum comparative disadvantage
similarly the country's imports will be
of goods having relatively less
comparative cost advantage of greater
disadvantage
Ricardo's assumption which I'll do
explain his theory with the help of
following assumption there are two
countries and two commodities there is a
perfect competition both in commodity
and factor market cause of production is
expressed in terms of labour that is
value of a commodity is measured in
terms of labor hours or days required to
produce it commodities are also
exchanged in the basic of labor content
of each good labor is the only factor of
production
other than natural resources labor is
homogeneous that is identical in
efficiency in a particular country labor
is perfectly mobile within a country but
perfectly immobile between countries
there's free trade that is the movement
of goods between countries is not
hindered by any restriction production
is subject to constant returns to scale
there is no technological change trade
between two countries takes place on
barter system full employment exists in
both countries there is no transport
cost heckscher-ohlin create model there
Hester all in a chore here after model
was first conceived by two Swedish
economist le head stir and broach in all
in the dough monetary concept
further development added later by Paul
Samuelson and Ronald Jones among others
four major components of the H ol model
factor price equalisation theorem straw
per Samuelson theorem ribs in key term
and heckscher-ohlin trade theorem
factor price equalisation theorem among
the four main result of the H o theory
FBE is the most fragile theorem if any
of the eight assumption is violated it
will not hold what is diamond of
national advantage classical theories of
international trade propose that
comparative advantage recites in the
factors endowments that a country may be
fortunate enough to inherit factor
endowments include land natural
resources labour and the size of the
local population Michael Porter argued
that a nation can create new advanced
factor endowments such as skill label a
strong technology and knowledge base
government support and culture for to
use a diamond shaped diagram as a basic
of a framework illustrating the
determinants of national advantage
Porter's diamond of national advantage
chart the individual points of the
diamond and the diamond as the whole
effect for ingredients that lead to a
national comparative advantage these
ingredients are the availability of
resources and skills information that
firms use to decide which opportunities
to pursue with those resources and
skills the goals of individuals in
companies the pressure on companies to
innovate and invest factor condition a
country creates its own important
factors such as skill resources and
technological base the stock of factors
at a given time is less important than
the extent that they are upgraded and
deployed local disadvantages in factors
of production force innovation adverse
condition demand condition when the
market for a particular product is
larger locally then in foreign markets
the local firms devote more
attention to that product then do
foreign firms leading to a competitive
advantage when the local firms begin
exporting their product
a more demanding local market leads to
national advantage a strong trend
setting local market helps local firms
anticipate global trends evaluation of
heckscher-ohlin theory of international
trade a significant difference between
the classical and the modern approach is
that former consisted primarily of
propositions about the relative price of
goods the later officer series our
proposition about the relative prices of
factors it also appears that the
classical theory was an attempt at
establishing the welfare position of
trade theory is stretched that
territorial specialization based on
comparative advantage leads to an
increase the welfare of the world as a
whole on the other hand heckscher-ohlin
theory makes a positive contribution to
economics it makes a scientific attempt
to explain the structure of
international trade and reveals the
ultimate basis of international trade as
the differences in factor endowment in
different region the factor proportion
theorem of Orlan also reveals the
classical lacunae of placing emphasis on
the quality of a single factor labor as
playing a key role in determining
comparative advantage in the Ricardian
model comparative cause differences are
viewed under the assumption that
identical absolute combination of the
factors devoted to the production of a
single good would produce different
amounts of that good in different
countries on the other hand the old
lenient model assume that the production
function of a given commodity is
identical from country to country but in
variance from commodity to commodities
India's international trade policy
although India has steadily opened up
its economy its towers continue to be
high when compared with other countries
and its investment norms are still
restrictive average non-agricultural
terrors have fallen below 15%
quantitative restriction on imports have
been eliminated and foreign investment
have been relaxed for a number of
sectors agricultural tariffs average
between 30 to 40% anti-dumping measure
have been liberally used to protect
trade and the country's among the few in
the world that continue to ban foreign
investment in retail trade in there is
now aggressively pushing for a more
liberal global trade regime and have
assumed a leadership role among
developing nation in global trade
negotiation and played a critical part
in the Doha negotiation reasonable and
bilateral trade agreement in there has
recently signed trade agreements with
its neighbor and seeking new ones with
the East Asian countries and the United
States its regional and bilateral trade
agreements are variants of them are at
different stages of development trade
agreements with Bangladesh Bhutan Sri
Lanka Maldives China and South Korea in
the nepal trade treaty comprehensive
economic cooperation agreement CEC
Singapore favog agreements with the
Association of Southeast Asian Nations
ASEAN Thailand and Syal
preferential trade agreements with
Afghanistan child add more cozier the
later is our trading zone between Brazil
Argentina Uruguay and Paraguay world
bank involvement as a number of research
institution in the country provide the
government with good just-in-time and
low-cost
analytical advice on trade related
issues the World Bank has focused on
providing analysis on specialized
subject at the government's request in
the last three years the bank has been
working with the Ministry of Commerce in
a participative manner to help the
country to block and inform strategy for
domestic reform and international
negotiation given the sensitivity of
trade policy and negotiation issues the
bank rule has been confined to providing
better information and analysis than was
previously available to India's
policymakers summary now in the end let
us summarize what we have learned in
this lecture International trades
between countries and across continents
have
sisters for centuries including previous
civilization technology in terms of
communication as well as software
technology has changed the way business
organization managed activities be it
manufacturing procurement in ants or
sales managing international trade as
multi-dimensional expect which need to
be considered by each country in reality
goods are produced using several factors
of production simultaneously such as
capital land and various types of labour
classical theories of international
trade propose the comparative advantage
residing a factor endowment that a
country may be fortunate enough to
inherit