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com

A DISSERTATION REPORT ON STUDY OF


INTERNATIONAL TRADE
ITS DIRECTION AND COMPOSITION

Submitted in partial fulfillment of the requirements for the


Degree
Of Masters of Business Administration

Faculty Guide:

Submitted By:

Dr.R.K Saini

Ankita Srivastava

(Assistant Professor MBA)

MBA Final Year

COLLEGE OF ENGINEERING ROORKEE SCHOOL OF


MANAGEMENT (UTTARAKHAND TECHNICAL
UNIVERSITY)

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ACKNOWLEDGEMENT

I am extremely thankful to who helped and inspired me in giving silhouette to the


present research work. My first thanks go to God.
I am unable to find suitable words to express my gratitude to my supervisor Mrs.
Veera Lakshmi, Head of the Department, COER School of Management, Roorkee, Haridwar
for her support and tireless guidance during the course of my dissertation. Without his
guidance I would never have been able to complete my research work.
I am beholden to Dr. R.K. Saini, Assistant Professor, and Department of Management
Studies COER School of Management for his precious encouragement and suggestions.
I owe my thanks to the authors and publishers of various books, magazines, journals
and reports, a list which is given in the bibliography at the end, which I made use to complete
my research study.
Finally, I extend my deep thanks to my family members who are the source of
enthusiasm, who always taught me values of honesty and hard work, which are the
corner stones of true happiness and success I shall be failing in my responsibility, I am
thankful to my Friends who pointed out errors in my thesis and always provided me moral
support to keep my spirit high.

Ankita Srivastava
MBA Final Year
Date:
Place: ..

DECLARATION
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I hereby declare that the present study entitled IInternational trade its
Direction and Composition
Composition is being submitted by me in the partial fulfillment of
the requirement for the award of Degree of Master in Business Administration by
COER-SM, Roorkee is a record of my own work.
The matter embodied in this project report has not been submitted to any other
institution or university for the award of any degree, diploma, certificate etc.

Ankita Srivastava
Date:

MBA Final Year

Place: ..

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CONTENTS

Introduction.......................................................................................................... 5-19
Theories of International Trade..........................................................................20-22
Objectives.............................................................................................................. 23
Review Of Literature............................................................................................ 24-29
Research Methodology........................................................................................... 30
Data Analysis..........................................................................................................31-32
Findings.................................................................................................................. 33
Bibliography........................................................................................................... 34

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INTRODUCTION

International trade is the exchange of capital, goods, and services across international
borders or territories. In most countries, such trade represents a significant share of gross
domestic product (GDP). While international trade has been present throughout much of
history (see slik Road, Amber Road), its economic, social, and political importance has been
on the rise in recent centuries.
Industrialization,advanced transportation, globalization, multinational
corporations,
and outsourcing are all having a major impact on the international trade system. Increasing
international trade is crucial to the continuance of globalization. Without international trade,
nations would be limited to the goods and services produced within their own borders.
International trade is, in principle, not different from domestic trade as the motivation and the
behavior of parties involved in a trade do not change fundamentally regardless of whether
trade is across a border or not. The main difference is that international trade is typically more
costly than domestic trade. The reason is that a border typically imposes additional costs such
as tariffs, time costs due to border delays and costs associated with country differences such
as language, the legal system or culture.
Global Competitiveness Index (2008-2009): competitiveness is an important determinant for
the well-being of states in an international trade environment.
International trade uses a variety of currencies, the most important of which are held
as foreign reserves by governments andcentral banks. Here the percentage of global
cummulative reserves held for each currency between 1995 and 2005 are shown: the US
dollar is the most sought-after currency, with the Euro in strong demand as well.
International trade is the exchange of capital, goods, and services across international
borders or territories.[1] In most countries, such trade represents a significant share of gross
domestic product (GDP). While international trade has been present throughout much of
history (see Silk Road, Amber Road), its economic, social, and political importance has been
on the rise in recent centuries.
Industrialization,
advanced transportation, globalization, multinational
corporations,
and outsourcing are all having a major impact on the international trade system. Increasing
international trade is crucial to the continuance ofglobalization. Without international trade,
nations would be limited to the goods and services produced within their own borders.
International trade is, in principle, not different from domestic trade as the motivation and the
behavior of parties involved in a trade do not change fundamentally regardless of whether
trade is across a border or not. The main difference is that international trade is typically more
costly than domestic trade. The reason is that a border typically imposes additional costs such
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as tariffs, time costs due to border delays and costs associated with country differences such
as language, the legal system or culture.
Another difference between domestic and international trade is that factors of
production such as capital and laborare typically more mobile within a country than across
countries. Thus international trade is mostly restricted to trade in goods and services, and
only to a lesser extent to trade in capital, labor or other factors of production. Trade in goods
and services can serve as a substitute for trade in factors of production.
Instead of importing a factor of production, a country can import goods that make intensive
use of that factor of production and thus embody it. An example is the import of laborintensive goods by the United States from China. Instead of importing Chinese labor, the
United States imports goods that were produced with Chinese labor. One report in 2010
suggested that international trade was increased when a country hosted a network of
immigrants, but the trade effect was weakened when the immigrants became assimilated into
their new country. International trade is also a branch of economics, which, together
with international finance, forms the larger branch of international economics.

Current members of the World Trade Organisation.


Traditionally trade was regulated through bilateral treaties between two
nations. For centuries under the belief in mercantilism most nations had
high tariffs and many restrictions on international trade. In the 19th
century, especially in the United Kingdom, a belief in free trade became
paramount.[citation needed] This belief became the dominant thinking
among western nations since then. In the years since the Second World
War, controversial multilateral treaties like the General Agreement on
Tariffs and Trade (GATT) and World Trade Organization have attempted to
promote free trade while creating a globally regulated trade structure.
These trade agreements have often resulted in discontent and protest
with claims of unfair trade that is not beneficial to developing countries.
Free trade is usually most strongly supported by the most economically
powerful nations, though they often engage in selectiveprotectionism for
those industries which are strategically important such as the protective
tariffs applied to agriculture by theUnited States and Europe.[citation
needed] The Netherlands and the United Kingdom were both strong
advocates of free trade when they were economically dominant, today the
United States, the United Kingdom, Australia and Japan are its greatest
proponents. However, many other countries (such as India, China and
Russia) are increasingly becoming advocates of free trade as they become
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more economically powerful themselves. As tariff levels fall there is also


an increasing willingness to negotiate non tariff measures, including
foreign direct investment, procurement and trade facilitation.[citation
needed] The latter looks at the transaction cost associated with meeting
trade and customs procedures.
Traditionally agricultural interests are usually in favour of free trade while
manufacturing sectors often support protectionism.[citation needed]This
has changed somewhat in recent years, however. In fact, agricultural
lobbies, particularly in the United States, Europe and Japan, are chiefly
responsible for particular rules in the major international trade treaties
which allow for more protectionist measures in agriculture than for most
other goods and services.
During recessions there is often strong domestic pressure to increase
tariffs to protect domestic industries. This occurred around the world
during the Great Depression. Many economists have attempted to portray
tariffs as the underlining reason behind the collapse in world trade that
many believe seriously deepened the depression.
The regulation of international trade is done through the World Trade
Organization at the global level, and through several other regional
arrangements such as MERCOSUR in South America, the North American
Free Trade Agreement (NAFTA) between the United States, Canada and
Mexico, and the European Union between 27 independent states. The
2005 Buenos Aires talks on the planned establishment of the Free Trade
Area of the Americas (FTAA) failed largely because of opposition from the
populations of Latin American nations. Similar agreements such as the
Multilateral Agreement on Investment (MAI) have also failed in recent
years.

Risk in International Trade


While trade barriers and unfair practices take many forms, the most
common examples are listed below:

Intellectual property infringement - including copyright, patent and


trademarks.

Lack of competitive bidding for foreign government tenders.

Competition from unfairly traded


government subsidized) imports.

(i.e.,

dumped

or

foreign

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Unfair and trade distortive subsidies


governments to overseas competitors.

Foreign trade remedy investigations conducted inconsistent with


international obligations.

Burden some certification and testing requirements that are not


required by domestic manufacturers.

Increasing imports and unfair competition.

Concerns over other foreign trade barriers to export or investment.

provided

by

foreign

Introduction to Direction of India's Foreign Trade

By direction of trade we mean the countries with which India keeps international trade
relations. It also helps us to understand the diplomatic relations maintained by India with
other countries in direction of trade.
For the purpose of direction of trade, the countries to which India exports are broadly divided
into following five groups

The group of countries to which India Exports are :-

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Organisation for Economic Co-operation & Development (OECD) comprising of USA,


Canada, European Union (EU), Australia and Japan.
Organisation of Petroleum Exporting Countries (OPEC) which includes Kuwait, Iran, Iraq,
Saudi Arabia and others.
Eastern Europe which includes Romania, Russia and others.
Developing Nations which includes China, Hong Kong, South Korea, Singapore and
Malaysia.

A. Direction of India's Exports

The above table reveals following changes in India's Exports :


1. OECD
The OECD group accounted for a major portion of India's exports. The share of this group
was 56.4% in 1990-91 & 44.3% in 2005-06. About 45% of these exports have been to
European Union (EU) countries.

2. OPEC
The share of OPEC which was 5.6% in 1990-91. In 2005-06 it has increased to 14.8% i.e.
share of OPEC has been showing an upward trend since 1990-91.

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3. Eastern Europe
There was a rapid decrease in the share of Eastern Europe particularly U.S.S.R. Due to
political problems & disintegration of the U.S.S.R, the share of Eastern Europe decreased
from 17.9% in 1990-91 to 1.9% in 2005-06.

4. Developing Countries
The share of developing nations increased from 17.1% in 1990-91 to 38.7% in 2005-06.
Asian countries now account for 1/4th of India's export earnings. Among the Asian countries
the major export destinations have been Hong Kong, Singapore & Thailand.

5. Other Countries The share of other countries has declined from 3.00% in 1990-91 to
0.3% in 2005-06.

Important Facts of India's Country Wise Exports


The share of U.K in India's exports declined from 26.9% in 1960-61 to 4.5% in 2004-05.
The share of USA in India's exports was 16% in 1960-61 and it rose to 16.7% in 2004-05.
India was dependent on U.K and U.S.A for 43% of its export earnings in 1960-61. US to be
the single largest trading partner for India but with a declining trend.
The share of U.S.S.R. (Russia) rose from 4.5% in 1960-61 to 18.3% in 1980-81 but declined
to 0.8% in 2004-05 due to the disintegration of U.S.S.R. Between 1986-90, the first position
was occupied by U.S.A, second position by U.S.S.R and the third position by Japan. The
position changed markedly after the disintegration of U.S.S.R.
In the recent years, export to East Asian Countries has increased, mainly Hong Kong,
Singapore and Thailand.
There has been a healthy growth of bilateral trade between India and China. In the first seven
months of 2002-03, Indo-China bilateral trade expanded by 43.4%. China is the second
largest trading partner for India next to USA.

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Direction of India's Imports


Since the last decade, there has been a distinct shift in the direction of trade. The share of
OECD countries both in exports & imports is on the decline. Eastern Europe is no more a
major partner in our trade. Its share has reached the lowest among the group. The Asian
developing countries are becoming important trade partners.

The above table reveals following changes in India's Imports :-

1. OECD - Organisation for Economic Co-operation and Development


The share of OECD in India's import expenditure declined from 54% in 1990-91 to 32.73%
in 2005-06. Thus the importance of OECD declined over the period 1990-91 to 2005-06.

2. OPEC - Organisation of Petroleum Exportinq Countries


OPEC mainly include Iran, Iraq, Kuwait and Saudi Arabia. The share of OPEC countries
decreased from 16.3% in 1990-91 to 7.7% in 2005-06 mainly because of crude oil. There has
been a change in the source of oil imports from OPEC to other countries.

3. Eastern Europe
This includes mainly the former USSR. India's share of imports from Eastern Europe has also
declined from 7.8% in 1990-91 to 2.6% in 2005-06. This is mainly due to decline in imports
from Russia.
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4. Developing Nations
This includes the developing countries of Africa, Asia, Latin America and Caribbean. The
share of developing nations in India's import expenditure increased from 18.4% in 1990-91 to
25.9% in 2005-06.

5. Other Countries
The share of other countries increased from 3.5% in 1990-91 to 31.1% in 2005-06.

Important Facts of India's Country Wise Imports


The share of U.S.A in India's imports was 29.2% and that of U.K was 19.4% in 1960-61.
U.S.A. ranked first and U.K ranked the second. During the whole planning period, India has
obtained maximum imports from U.S.A.
With the emergence of new trading partners like Japan, Germany and Canada the dependence
on U.K. declined. The share of U.K. in Indian imports declined from 19.4% in 1960-61 to
3.2% in 2004-05.
Trade with Japan increased in absolute terms and India has now entered in to a number of
collaborations with Japan. The percentage share of Japan has decreased from 5.4% in 196061 to 2.8% in 2004-05.
Trade with USSR occupied the second place next to USA, during 1984. The share of USSR
increased from 1.4% in 1960-61 to 10.4% in 1984-85. With the disintegration of USSR, the
share of Russia fell to 1.2% in 2004-05. The directions has now changed markedly.
The share of developing countries has constituted more than 1/4th of total imports in 2004-05
of these imports from Asian countries are most important.

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Conclusion on Direction of India's Foreign Trade


Significant changes have taken place in the direction of India's foreign trade since 1991, and
more particularly during the last two-three years. What's most significant is the emergence of
China, Singapore, Hong Kong, South Korea & Malaysia as important trading partners of
India from the Asian region, Switzerland from OECD countries, and UAE & Indonesia
(which left OPEC in 2008) from OPEC countries.
However, India should cultivate more trade relations with Africa, South America and MiddleEast Asian Countries as these rich countries would offer huge markets for India's export.
The diversification of India's exports has fetched a cheaper source of imports and a bigger
market for exports. India has established herself in the highly competitive world market in the
recent years.

A. Composition of India's Exports


Britishers strongly believed that India was a country well suited to supply raw materials and
other primary goods and a good market place for British manufacturers. So at the time of our
independence our exports were predominantly of primary goods and imports were of
manufacturers. At the time of independence agricultural commodities and light manufactured
consumer goods dominated India's export basket. During the post independence period
India's composition of exports changed.
Now exports of India's are broadly classified into following four categories.

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Table below shows composition of India's export from 1990-91 to 2005-06

The composition of India's export can be summarised as follows :1. Agricultural and Allied Products
The share of agriculture items in the total exports of India has declined between 1990-91 to
2005-06. The share of agriculture exports was 19.5% in 1990-91. It came down to about
10.2% in 2005-06.
The top items of agriculture exports include :Fish Products,
Rice,
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Oil Cakes,
Fruits and Vegetables
The most important export item in 'Agriculture and Allied products' group over the period
1991-92 to 2005-06 has been 'Fish and Fish Preparations'. From $ 585 millions in 1991-92
export earnings from fish and fish preparations rose to $ 1,589 millions in 2005-06. However,
in percentage terms, their share fell slightly from 3.3 percent in 1991-92 to 1.5 percent in
2005-06.
As far as agricultural exports are concerned, a significant development during the period
since 1991 has been the considerable exports of rice in certain year. In fact, exports of rice
were as high as $ 1,366 millions in 1995-96 which was 4.3 percent of total export earning in
that year. In 2005-06, exports of rice were worth $ 1,405 millions which was 1.4 percent of
total export earning in that year.
2. Ores and Minerals
The overall export performance of ores and minerals is not satisfactory. In percentage terms,
the export performance of ores and mineral has increased from 4.4% in 199091 to 5.2% in
2005-06. A major share of ores and minerals exports comes from the export of iron ore.
3. Manufactured Goods
The share of manufactured items in the total export earnings of India is on the increase. In
1990-91, the share of manufactured items in the total export earnings was about 73% of the
total export earnings.
In 2005-06, the share of manufactured items in the total export earnings of India remained
stagnant at 72%.
The top manufactured export items include :Engineering Goods,
Gems and Jewellery,
Chemicals and Allied products, and
Readymade Garments
The export of engineering goods increased from $ 2,234 millions in 1991-92 to $ 21,315
million in 2005-06. In percentage terms the share of engineering goods rose from 12.5% in
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1991-92 to 20.7% in 2005-06. Over the period 1991-92 to 2002-03, engineering goods
occupied the second position in India's export earnings after gems and jewellery. However,
thereafter engineering goods have occupied the first place. In 2005-06 they contributed
20.7% (i.e. one-fifth) of total export earnings.
For most of the period since 1991, largest export earnings came from the exports of gems and
jewellery. The share of gems and jewellery in India's total export was 15.3% in 1991-92 and
15.1% in 2005-06. However, gems and jewellery industry is a highly import intensive
industry requiring large amount of imports of pearls and precious stones.
Exports of chemicals and allied products rose significantly from $ 1,583 millions in 1991-92
to $ 11,935 millions in 2005-06. In percentage terms, their share stood at 11.6% in 2005-06
and they occupied the third place in India's export earnings in this year.
In percentage terms, readymade garments maintained an almost constant share all through the
period since 1991. They contributed 12.3% of export earnings in 1991-92 and 12.5% of
export earnings in 2000-01. In 2003-04, their share fell to 9.8% and in 2005-06 to 8.3%.

4. Mineral Fuel and Lubricants


There has been an improvement in the export of mineral fuels and lubricants both in terms of
value and in terms of percentage. In percentage terms, its share has increased from less than
2.9% in 1990-91 to 11.5% in 2005-06.
Some other facts regarding structural change in India's export since 1991 are as follows :There are indication that during 1990s, some of Indian exports have moved upwards in value
addition chain whereby instead of exporting raw materials, the country has switched over to
export of processed goods.
There were significant compositional shift within the major manufactured product groups
such as engineering. goods, chemicals and allied products, etc.

B. Composition of India's Imports

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In 1947-48 the main items of India's imports were machineries, oil, grains, cotton, cutlery,
hardware implements, chemicals, etc. They constituted 70% of India's imports. After that due
to the emphasis on industrialisation during the second 5-Year plan necessitated the imports of
capital goods.
Now imports of India's are broadly classified into following four categories.

Table below shows composition of India's import from 1990-91 to 2005-06.

The composition of India's imports can be summarised as follows :-

1. Petroleum Products
Imports of petroleum oil and lubricants rose significantly from $ 5364 millions in 199192 to
$ 43,963 millions i.e. more than eight times.

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Due to high price of crude oil, the POL imports jumped to $ 15,650 millions in 2000-01. In
1990-91, petroleum products accounted for nearly 25% of total imports of India. In 2005-06,
it has further increased to nearly 31% of the total import bill of India.

2. Capital Goods
The imports of capital goods was $ 3,610 millions in 1991-92. In 1995-96 due to sharp rise in
non-electrical machinery imports, the imports of capital goods jumped upto $ 8,458 millions.
However due to slowing domestic demand imports of capital goods fell subsequently. The
capital goods and related items were 24.1% of the total imports of India in 1990-91, which
has come down slightly in 2005-06 to about 22.3%.

3. Pearls and Precious Stones


To meet the requirements of the gems & jewellery industry pearls and precious stones are
imported in large quantities. In 1990-91, the share of pearls and precibus stones was 8.7%
which has reduced in percentage terms to 6.4% in 2005-06.

4. Iron and Steel


The imports of iron and steel have declined over the years in percentage terms. In 1990-91,
the share of iron and steel imports was 5%, which has come down to 3% in 2005-06. This is
because, a good amount of iron ore is now extracted in India which has reduced imports.

5. Fertilizers
Import of fertilizers in 1991-92 stood at $ 954 millions. In 2003-04 expenditure on import of
fertilizers was $ 635 millions.
The import of fertilizers have declined, which indicates less dependence of India on imported
fertilizers. The share in total imports of fertilizers was 4.1% in 1990-91, which came down to
1.5% in 2005-06.

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Conclusion on India's Foreign Trade


Composition of India's foreign trade has undergone a positive change. It is a remarkable
achievement that India have transformed itself from a predominantly primary goods
exporting country into a non-primary goods exporting country. Under import too India's
dependence on food grains and capital goods has declined.

What are the major causes for the change in Composition of Exports in
India?
1. Decline in Percentage Share of Agricultural Products:
After independence, the percentage share of agricultural products in total exports has
considerably declined. For instance, in 1970-71, agricultural products contributed 31% in
total export earnings which in 2001-02 declined to 14.9%.

2. Decline in the Share of Conventional Items:


Before independence, conventional items comprise of Jute, tea, food grains and minerals
contributed more than 41%. But in 2001-02, the share of these items taken together has come
down to 16.7%. The main reasons for the decline are an increase in abnormal demand of food
grains and raw materials due to an increase in population.

3. Increase in Share of Manufactured Goods:


After independence, the share of manufactured goods in the total export earnings has
considerably increased. In the financial year of 1970-71, the share of manufactured goods
was 56% which in 2001-02 rose to 81.6%.

4. Increase in the Share of Petroleum Products and Minerals:


The percentage share of export earning in the total earnings is only 0.1 percent while share of
minerals has been recorded to be 2.4 respectively in 2001-02.
5. Increase in the Export of Gems and Readymade Garments :

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Exports of gems and readymade garments had emerged as an important foreign exchange
earner in recent years. The exports of gems enjoy the first place as of ready made garments,
the second in the total export earnings of the country.

THEORIES OF IT

Introduction
In the 1600 and 1700 centuries, mercantilism stressed that countries should simultaneously
encourage exports and discourage imports. Although mercantilism is an old theory it echoes
in modern politics and trade policies of many countries. The neoclassical economist Adam
Smith, who developed the theory of absolute advantage, was the first to explain why
unrestricted free trade is beneficial to a country. Smith argued that 'the invisible hand' of the
market mechanism, rather than government policy, should determine what a country imports
and what it exports. Two theories have been developed from Adam Smith's absolute
advantage theory. The first is the English neoclassical economist David Ricardo's
comparative advantage. Two Swedish economists, Eli Hecksher and Bertil Ohlin, develop the
second theory.
The Heckscher-Ohlin theory is preferred on theoretical grounds, but in real-world
international trade pattern it turned out not to be easily transferred, referred to as the Leontief
paradox. Another theory trying to explain the failure of the Hecksher-Ohlin theory of
international trade was the product life cycle theory developed by Raymond Vernon.

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Mercantilism
According to Wild, 2000, the trade theory that states that nations should accumulate
financial wealth, usually in the form of gold, by encouraging exports and discouraging
imports is called mercantilism. According to this theory other measures of countries' well
being, such as living standards or human development, are irrelevant. Mainly Great Britain,
France, the Netherlands, Portugal and Spain used mercantilism during the 1500s to the late
1700s.
Mercantilistic countries practised the so-called zero-sum game, which meant that world
wealth was limited and that countries only could increase their share at expense of their
neighbours. The economic development was prevented when the mercantilistic countries paid
the colonies little for export and charged them high price for import. The main problem with
mercantilism is that all countries engaged in export but was restricted from import, another
prevention from development of international trade.

Absolute Advantage
The Scottish economist Adam Smith developed the trade theory of absolute advantage in
1776. A country that has an absolute advantage produces greater output of a good or service
than other countries using the same amount of resources. Smith stated that tariffs and quotas
should not restrict international trade; it should be allowed to flow according to market
forces. Contrary to mercantilism Smith argued that a country should concentrate on
production of goods in which it holds an absolute advantage. No country would then need to
produce all the goods it consumed. The theory of absolute advantage destroys the
mercantilistic idea that international trade is a zero-sum game. According to the absolute
advantage theory, international trade is a positive-sum game, because there are gains for both
countries to an exchange. Unlike mercantilism this theory measures the nation's wealth by the
living standards of its people and not by gold and silver.
There is a potential problem with absolute advantage. If there is one country that does not
have an absolute advantage in the production of any product, will there still be benefit to
trade, and will trade even occur? The answer may be found in the extension of absolute
advantage, the theory of comparative advantage.

Comparative Advantage
The most basic concept in the whole of international trade theory is the principle of
comparative advantage, first introduced by David Ricardo in 1817. It remains a major
influence on much international trade policy and is therefore important in understanding the
modern global economy. The principle of comparative advantage states that a country should
specialise in producing and exporting those products in which is has a comparative, or
relative cost, advantage compared with other countries and should import those goods in
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which it has a comparative disadvantage. Out of such specialisation, it is argued, will accrue
greater benefit for all.
In this theory there are several assumptions that limit the real-world application. The
assumption that countries are driven only by the maximisation of production and
consumption, and not by issues out of concern for workers or consumers is a mistake.

Heckscher-Ohlin Theory
In the early 1900s an international trade theory called factor proportions theory emerged by
two Swedish economists, Eli Heckscher and Bertil Ohlin. This theory is also called the
Heckscher-Ohlin theory. The Heckscher-Ohlin theory stresses that countries should produce
and export goods that require resources (factors) that are abundant and import goods that
require resources in short supply. This theory differs from the theories of comparative
advantage and absolute advantage since these theory focuses on the productivity of the
production process for a particular good. On the contrary, the Heckscher-Ohlin theory states
that a country should specialise production and export using the factors that are most
abundant, and thus the cheapest. Not produce, as earlier theories stated, the goods it produces
most efficiently.
The Heckscher-Ohlin theory is preferred to the Ricardo theory by many economists,
because it makes fewer simplifying assumptions. In 1953, Wassily Leontief published a
study, where he tested the validity of the Heckscher-Ohlin theory. The study showed that the
U.S was more abundant in capital compared to other countries, therefore the U.S would
export capital- intensive goods and import labour-intensive goods. Leontief found out that the
U.S's export was less capital intensive than import.

Product Life Cycle Theory


Raymond Vernon developed the international product life cycle theory in the 1960s. The
international product life cycle theory stresses that a company will begin to export its product
and later take on foreign direct investment as the product moves through its life cycle.
Eventually a country's export becomes its import. Although the model is developed around
the U.S, it can be generalised and applied to any of the developed and innovative markets of
the world.
The product life cycle theory was developed during the 1960s and focused on the U.S since
most innovations came from that market. This was an applicable theory at that time since the
U.S dominated the world trade. Today, the U.S is no longer the only innovator of products in
the world. Today companies design new products and modify them much quicker than before.
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Companies are forced to introduce the products in many different markets at the same time to
gain cost benefits before its sales declines. The theory does not explain trade patterns of
today.

Summary
Mercantilism proposed that a country should try to export more than it imports, in order to
receive gold. The main criticism of mercantilism is that countries are restricted from import, a
prevention of international trade. Adam Smith developed the theory of absolute advantage
that stressed that a country should produce goods or services if it uses a lesser amount of
resources than other countries. David Ricardo stated in his theory of comparative advantage
that a country should specialise in producing and exporting products in which it has a
comparative advantage and it should import goods in which it has a comparative
disadvantage. Hecksher-Ohlin's theory of factor endowments stressed that a country should
produce and export goods that require resources (factors) that are abundant in the home
country. Leontief tested the Hecksher-Ohlin theory in the U.S. and found that it was not
applicable in the U.S. Raymond Vernon's product life cycle theory stresses that a company
will begin to export its product and later take on foreign direct investment as the product
moves through its life cycle. Eventually a country's export becomes its import.

OBJECTIVES OF THE STUDY OF INTERNATIONAL TRADE ITS


DIRECTION AND COMPOSITION

To find out the direction and composition of Indian Export and Import.
To find out the list of countries India Trades with.
To collect the data of Import and Export values of India.

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REVIEW OF LITERATURE

Mukherji Indra Nath (2011)In this paper he makes an attempt to explain the trend in
bilateral trade between the two countries. He points out that barring setbacks in certain years,
the bilateral trade between the two countries has been growing steadily. He notes that even
though Nepal has been able to diversify its trade with India, its trade deficit with India has
been increasing sharply, and its export earnings are barely sufficient to meet the cost of
imports of petroleum products from India.This paper identifies products with high trade
potential of both the countries so that these could be targeted in trade facilitation measures or
when mutual recognition of each countrys certification is accepted by the other. Realizing
the close linkage between trade and investment, this paper examines the volume and status of
Indian foreign direct investments in Nepal. An exercise in intra-industry trade between the
two countries gives direction for sectors/industries in which Indian investment could flow.
This paper published by Mr.Mukherji expresses concern about the labour situation in Nepal
and the lack of arbitration tribunals in case of dispute. Quite a number of Indian industries

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have been shut down and those in the pipeline could also be adversely affected. In this
context the need for long-pending Bilateral Investment Treaty (BIT) has been emphasized.

Chaney Thomas (2011): Under this research paper Mr.Thomas determines the gravity
equation in international trade is one of the most robust empirical nding in economics:
bilateral trade between two countries is proportional to their respective sizes, measured by
their GDP, and inversely proportional to the geographic distance between them.While the role
of economic size is well understood, the role played by distance remains a mystery. In this
paper, He propose the rst explanation for the gravity equation in international trade. This
explanation is based on the emergence of a stable international network of importers and
exporters. Firms can only export into markets in which they have a contact. They acquire
contacts by gradually meeting the contacts of their contacts.He show that if, as observed
empirically,
(i)
(ii)

the distribution of the number of foreign countries accessed by exporters is fattailed


there is a large turnover in exports, with rms often going in and out of individual

(iii)

foreign markets, and


geographic distance hinders the initial acquisition of contactsin an arbitrary way,
then trade is proportional to country size, and inversely proportional todistance. Data
on rm level, sectoral, and aggregate trade support further predictions of the model.

Ma Jing, Lu Yuduo (2011):In this paper his main purpose is to , firstly explain the reason of
international trade according to recent theories; secondly, collect several sorts of opinions
about free trade and protectionism referring to relevant literatures; thirdly describe export
barriers in different aspects, such as natural barriers and artificial barriers; lastly from trade
regulation perspective introduce WTO as a tool of promoting international trade.

Sen Sunanda (2010): In this research paper she provides a survey of the literature on trade
theory, from the classical example of comparative advantage to the New Trade theories
currently used by many advanced countries to direct industrial policy and trade. An account is
provided of the neo-classical brand of reciprocal demand and resource endowment theories,
along with their usual empirical verifications and logical critiques. A useful supplement is
provided in terms of Staffan Linders theory of overlapping demand, which provides an
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explanation of trade structure in terms of aggregate demand. Attention is drawn to new


developments in trade theory, with strategic trade providing inputs to industrial policy. Issues
relating to trade, growth, and development are dealt with separately, supplemented by an
account of the neo-Marxist versions of trade and underdevelopment.

Pooja Sharma (2010): This paper looks at international trade governance, which is taken
to consist of the set of institutions and organisational structures that determine the
formulation and enforcement of rules and the associated negotiations over policies. We
first distinguish two forms of trade governance: regional arrangements and a global system
of trade governance. The paper then proposes a framework for understanding the coexistence of these alternative forms of trade governance based on their major economic
governance characteristics. We assess the nature of the two trade governance modes and
compare and contrast them along their main institutional characteristics. The global mode
may be characterised as largely rule-based in contrast to the regional mode, which is
relationship-based with flexibility in incorporation of rules. We argue that countries may
simultaneously engage in different modes of trade liberalisation due both to their trade and
income, as well as, governance implications, including the interplay between alternative
modes of governance.

Holger Breinlich,Chiara Criscuolo(2010): They provide a novel set of stylized facts on


rms engaging in international trade in services, using unique data on rm-level exports
and imports from the worlds second largest services exporter, the United Kingdom (UK).
They show that only a fraction of UK rms engage in international trade in services, that
trade participation varies widely across industries and that services traders are different
from non-traders in terms of size, productivity and other rm characteristics. They also
provide detailed evidence on the trading patterns of services exporters and importers, such
as the number of markets served, the value of exports and imports per market and the
share of individual markets in overall sales. They interpret these facts in the light of
existing theories of international trade in services and goods. Our results demonstrate that
rm-level heterogeneity is a key feature of services trade. Also, they many similarities
between services and goods trade at the rm level and conclude that existing

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heterogeneous rm models for goods trade will be a good starting point for explaining
trade in services as well.

Chen Huan (2009): Under this research paper he determines the relationship between
foreign trade and economic growth. On this issue, he at home and abroad used the relative
data of china and got different conclusions by different methods. At first, this thesis reviews
the theories of the relationship between foreign trade and economic growth, and then sum up
the main arguments of modern empirical economics. Finally, He makes a brief comment
and put forward some questions that should be explored in depth in this area. He provides a
broader and more comprehensive perspective to the later researchers.

P.Swan G.M(2009): In this paper Mr.Swan reviews the body of empirical work that has
investigated the specific question: How international standards impact on international trade?
Do they help or hinder trade? The work reviewed ranges from econometric studies using a
variety of measures of standards derived from e.g. the Perinorm database, diffusion of
ISO9000, regional agreements, mutual recognition agreements and harmonisation, to surveys
of exporting firms. A mapping of the findings from econometric models shows that there is
often, but not always, a positive relationship between international standards and exports or
imports, which is in line with the widely held view that international standards are supportive
of trade. For national (i.e. country-specific) standards studies find positive as well as negative
effects on trade and thus provide only qualified support for the commonly held view that
national standards create barriers to trade. Overall, this literature reviewed does not provide a
single answer to the question of trade effects, and the explanation for this appears to have to
do with how the multiple economic effects of standards interact. This paper summarises some
of the existing empirical evidence for some of these effects, which include network
externalities, variety, knowledge, quality and trust, and which merit further research in order
to understand when standards help trade, and when not.

Sova Ana Maria ,Sova Robert,Rault Christopher(2008): This article deals with
econometric developments for the estimation of gravity model, which allow to get convergent
parameter estimates even when a correlation exists between the explanatory variables and the
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specific unobservable characteristics of each individual. They implement panel data


econometric techniques to characterize bilateral trade flows between

heterogeneous

economies. Their econometric results based on a sample of 4 Central and Eastern European
countries (CEEC-4) and 19 OECD countries over a 18-year period highlight the importance
by taking into account the unobservable heterogeneity to obtain a robust empirical
specification and unbiased coefficients.

Thoenig Mathias,Mayer Thierry,Martin Philippe (2007): This paper analyzes empirically


the relationship between civil wars and international trade. They rst show that trade
destruction due to civil wars is very large and persistent and increases with the severity of the
conict . Then they identify two eects that trade can have on the risk of civil conicts:it
may act as a deterrent if trade gains are put at risk during civil wars butit may also act as an
insurance if international trade provides a substituteto internal trade during civil wars. They
nd support for the presence ofthese two mechanisms and conclude that trade openness may
deter the most severe civil wars (those that destroy the largest amount of trade) but may
increase the risk of lower scale conicts.

CHAND RAMESH (2006): Under this research paper he concentrates more on Agriculture.
Agriculture contributes substantially to output and employment in South Asian countries.
Therefore, any change, like trade liberalization, those impacts on the agriculture sector has
widespread ramifications in terms of employment, nutrition, livelihood and food security.
Implementation of various provisions of the WTO Agreement on Agriculture causes serious
concern with regard to the performance of the agriculture sector and food security, and these
countries have become quite sensitive to consequences of future WTO agreements. The
cautious approach towards the WTO is mainly caused by the increased dependence on food
imports and deterioration in self-reliance in agriculture in the post-WTO period because of a
much higher growth in food import as compared to exports. Decline in international prices
and trade distortions are the underlying causes for an adverse impact on agriculture during the
post-WTO period. South Asian countries should address these two issues in future
negotiations

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PONCET Sandra(2002): In this paper, they rely on a new set of provincial trade flow to
analyze and compare the magnitudeand evolution of Chinese provinces engagement in
domestic and international trade by computingall-inclusive indicators of trade barriers. They
find that Chinese provinces greater involvement ininternational trade went hand in hand with
a decrease in domestic trade flow intensity between 1987and 1997. Even if Chinese provinces
still rely more on goods from the rest of China than oninternational imports, provincial
borders matter more and more inside the country in the sense that they imply greater
discontinuities in the Chinese domestic market.

Strutt Anna, Poot Jacques, Dubbeldam Jason: Under this research paper they examines
the international and New Zealand literatures on the two-way interaction between
international migration and agreements designed to enhance cross-border trade or investment.
Benefits and costs of migration, to the extent that these may feature in trade and migration
negotiations, are discussed. While trade and migration can be substitutes in some contexts,
they will be complements in other contexts. Liberalisation of services and the movement of
people are likely to offer much more significant gains than liberalisation of remaining barriers
to goods trade. Significant scope for liberalisation under GATS mode 4 (the movement of
natural persons) may remain. However, temporary migration is already promoted on a
unilateral and bilateral basis within immigration policy frameworks that may provide greater
flexibility than GATS mode 4. With respect to both trade and migration, the more diverse the
exchanging countries are, the greater the economic benefits tend to be. However, greater
diversity may also imply greater social costs. This paradox of diversity needs to be addressed
through appropriate social policies accompanying enhanced temporary and permanent
migration.

Cox Larry W :This paper reviews 51 international entrepreneurship articles gleaned from
the ABI /Inform database of business citations. It divides the articles into four categories: (a)
individual entrepreneurs and their traits, (b) entrepreneurial processes, (c) environmental
factors, and (d)small and entrepreneurial ventures. They suggests that there is much room for
further research,particularly in cross-national comparisons of individual entrepreneurs, and
entrepreneurialprocesses.
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Guillaume Daudin, Jean-Luc Gaffard and Francesco Saraceno : This paper presents a
critical survey of the literature on trade openness. In the first part they start by analyzing
distributive domestic issues that arise following changing trade patterns. They identify the
sources of the problems, and assess the technical and political feasibility of measures aimed
at solving them. Then they examine the distribution of trade gains among countries. They
highlight situations in which asymmetric productivity gains may lead to conflicts between
countries despite an increase in global welfare. The second part shifts the focus on dynamic
consequences of trade. They begin by the theoretical arguments on the link between trade
openness and growth. Then they explore the tentative empirical arguments. Finally, they
highlight the importance of transition processes that affects economies experiencing changes
in international trade patterns. The paper concludes with a discussion of appropriate policy
measures.

RESEARCH METHODOLOGY

Research Methodology:To carry out the study the following research methodology
has been adopted Data collection:The study is based on Secondary data only.
Books: Mishra & Puri (from pg no.553-563) only introduction part.
Internet: -Websites:
http://en.wikipedia.org/wiki/International_trade
httpcommerce.nic.intradestatsIndiastrade_press.pdf
httpwww.unescap.orgtidartnetmtgtdgc_iift.pdf
http://www.fao.org/DOCREP/004/Y1669E/y1669e02.htm#TopOfPage
http://www.indiainfoline.com/Markets/News/Indias-Foreign-TradeFebruary-2012/5388939941
http://www.cybex.in/Exim-News/India-S-Foreign-Trade-February3344.aspx
http://commerce.nic.in/ann/RFD_2011_12.pdf

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Sampling: Convienient Sampling is used.


Sample Design: Descriptive Design.
Data Processing and Data Analysis: Tables,Bar Charts and percentages.

DATA ANALYSIS

Foreign Trade statics 2003-04 onwards yearly


YEAR
2003-04
2004-05
2005-06
2006-07
2007-08
2008-09
2009-10

2010-11

EXPORT
63843
83536
103091
126361
162904
185295
178751
240677

IMPORT
78149
111517
149166
185149
251439
303696
288373
345905

TRADE BALANCE
-14307
-27981
-46075
-59388
-88535
-118401
-109621
-105229

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400,000
300,000
200,000
export
100,000

Import
Trade balance

0
-100,000
-200,000

Fig.no.1
INTERPRETATION:
In year 2003-04,Export rate of India is 63,843$ and Import rate is
78,149$.
After 3 year in year 2006-07,the Export rate is increased by 1,26,361$
and Import rate is increased by 1,85,149$.
In year 2010-11,the Export rate is increased by 2,40,677$ and Import rate
is increased by 3,45,9054.
Import of India is higher than Export of India as shown in the graph that is why
the Trade balance is in negative(-) form.
Foreign Trade 2007-08 onwards Monthly 2010-11
Month

Export

Import

Trade balance

April
May
June
July
August
September
October
November
December
January
February
March

17742
16531
19948
16142
16854
18204
17930
21489
22500
20605
23597
29135

28770
26550
25883
26681
27044
29512
32462
28842
25130
28587
31701
34743

-11028
-10019
-5935
-10539
-10190
-11308
-14532
-7353
-2630
-7982
-8104
-5608
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40000
30000
20000
Export 2010-11
10000

Import 2010-11
Balance 2010-11

0
-10000
-20000

Fig.no.2
INTERPRETATION:
From April 2010-March 2011,the Export rate is fluctuating at a increasing
rate from 17,742$ to 29,135$ and Import rate is also fluctuating at a
increasing rate from 28,770$ to 34,743$.
Import of India is higher than Export of India as shown in the graph that is why
the Trade balance is in negative(-) form

FINDINGS

Import is higher than export in all Trades, and this is the main reason of
the negativity of the Trade Balances

Composition of Indias Import & Export


Petroleum commodities are the most imported items in India i;e.,30.9% in
the year 2010-11.
Manufactured goods covers the highest % of the Indias exported items
i;e.,72% in the year 2010-11.
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Direction of Indias Import & Export


32.73% of indias import in 2010-11 had been imported by OECDS.
44.3% of Indias export in 2010-11 had been exported to OECDS

BIBLIOGRAPHY

Websites/links
http://en.wikipedia.org/wiki/International_trade
http://www.google.co.in/#q=literature+review+of+international+trading&
hl=en&prmd=imvns&ei=991DTXgBcS8rAeHm_jaBw&start=20&sa=N
&bav=on.2,or.r_gc.r_pw.r_qf.,cf.osb&fp=92649ab2b544527c&biw=1366
&bih=667
http://www.amazon.com/s?ie=UTF8&rh=n%3A283155%2Ck
%3AInternational%20trade%20-%20Research%20%20Methodology.&page=1
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httpcommerce.nic.intradestatsIndiastrade_press.pdf
httpwww.unescap.orgtidartnetmtgtdgc_iift.pdf
http://www.fao.org/DOCREP/004/Y1669E/y1669e02.htm#TopOfPa
http://www.indiainfoline.com/Markets/News/Indias-Foreign-TradeFebruary-2012/5388939941
http://www.cybex.in/Exim-News/India-S-Foreign-Trade-February3344.aspx http://commerce.nic.in/ann/RFD_2011_12.pdf

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