This chapter has two goals that go to the heart of the debate over the benefits and costs of free trade. Today, international trade is shifting from traditional agro-products to industrial products and services, especially in developing countries like India. Limitation of Theories of Specialization: Besides intra-industry trade, the theory also explains intra-firm trade between the MNEs and their subsidiaries, with a motive to take advantage of the scale economies and increase their returns.
India has made remarkable progress in improving its global competitiveness during the International trade theories essay years. In Principles of Political Economy and Taxation, David Ricardo promulgated the theory of comparative advantage, wherein a country benefits from international trade even if it is less efficient than other nations in the production of two commodities.
Free trade refers to a situation where a government does not attempt to influence through quotas or duties what its citizens can buy from another country, or what they can produce and sell to another country.
The limitations of the theory of mercantilism are as follows: The availability and quality of local suppliers and related industries and the state of development of clusters play an important role in determining the competitiveness of a firm.
The opportunities and threats existing in any situation always exceed the resources needed to exploit the opportunities or avoid the threats. Let us assume that both the countries have the same amount of resources, say units, such as land, labour, capital, etc.
For instance, if the UK wishes to produce one tonne of tea, it has to forgo the production of 2. Thus, revealed comparative advantage may be employed as a useful tool to explain international trade patterns.
The development of sector-specific industrial clusters, such as brassware in Moradabad, hosiery in Tirupur, carpets in Bhadoi, semi-precious stones in jaipur, and diamond polishing in Surat, may also be attributed to external economies The new trade theory brings in the concept of economies of scale to explicate the Leontief paradox.
However, for countries with diversified resources, such as India, the US, China, and the UK, engagement in trade necessitates a logical basis.
Moreover, the country still has to take effective measures Exhibit 2. As a result, it has been observed that the innovating country begins to import such goods from other developing countries rather than manufacturing itself. It has resulted in the creation of a large number of export promotion organizations that look after the promotion of exports from the country.
The US was ranked as the most competitive economy in the world, followed by Switzerland, Denmark, Sweden, Singapore, Finland, and Germany whereas China and India were ranked at 30th and 50th positions, respectively.
Countries with the proximity of geographical locations would also have greater trade compared to the distant ones. The theory explains the variations and reasons for change in production and consumption patterns among various markets over a time period, as depicted in Fig.
The model can also be used for major geographic regions. This explains the development of industrial clusters, such as IT industries around Bangalore, textile industries around Tirupur, and metal handicrafts around Moradabad. Moreover, the country still has to take effective measures Exhibit 2.
Which of the theories of international trade can help Indian services providers gain competitive edge over their competitors?
A number of national governments still seem to cling to the mercantilist theory, and exports rather than imports are actively promoted. Some of the major chance factors in the context of India include disintegration of the erstwhile USSR and the collapse of the communist system in Eastern Europe, opening up of the Chinese market, the Gulf War, etc.
India is much less open both to foreign trade and to foreign direct investment. The logistics cost is overlooked in these theories, which may defy the proposed advantage of international trading.
It was only after the economic liberalization that the Indian industries were exposed to market competition. Basic to this approach is the conviction that there is no limit to improvement.
Theory of Mercantilism of International Trade:Abstract. In this reading a number of international trade theories are explained to help the reader better understand why it is beneficial for a country to engage in international trade, and explains the patterns of international trade that is observed in the world economy.
7 theories of international trade: 1. Mercantilism 2. Absolute Advantage 3. Comparative Advantage 4. Heckscher-Ohlin Theory 5. Product Life-Cycle Theory 6. New Trade Theory 7. The Theory of National Competitive Advantage. 1. Mercantilism-emerged in England in the midth century. Importance of International Trade Essay.
Discuss the importance of international trade to the company’s business () International trade is very important in this era for every international company, trade (export/import) in capital.
International Trade Theories Mercantilism Mercantilism was a sixteenth-century economic philosophy that maintained that a country's wealth was measured by its holdings of gold and silver (Mahoney, Trigg, Griffin, & Pustay, ).
This recquired the countries to maximise the difference between its exports and imports by promoting exports and discouraging imports. This chapter focuses on the benefits of international trade and introduces several theories that help explain the patterns of international trade that are observed in practice.
The discussion begins with an explanation of the theory of mercantilism, and then proceeds to discuss the theories of absolute advantage and comparative. International trade theory has shaped the economic policy of many nations for the past 50 years. It was the driver behind the formation of the World Trade Organization and regional trade blocs such as the European Union and the North American Free Trade Agreement (NAFTA).Download