TRADE THEORY

 CLASSICAL TRADE THEORY

 MODERN TRADE THEORY

CLASSICAL TRADE THEORY

 Theory of Mercantilism
o Encourage export
o Discourage import
o China has huge trade surplus
 Theory of Absolute advantage
o Business is to be done on the mutual basis
o For ex- one person (Country) is good at making roti and another person
(Country) is good at making sabji then the mutual help makes both satisfy.
 Theory of Comparative advantages
 Theory of Factor endowment theory
o HUMAN FACTOR
o PHYSICAL FACTOR

MODERN TRADE THEORY

 PRODUCT LIFE CYCLE THEORY

o Imitator to innovator
 NEW TRADE THEORY
 COMPETITIVE ADVANTAGE THEORY
 TRADE POLICIES

INTRUMENTS OF TRADE POLICIES (TOOL)

1. TARIFFS
IN TRADE THERE IS 2 TARIFFS-
1. IMPORT TARIFFS
2. EXPORTS TARIFFS
SUBTPYES-
 SPECIFIC TARIFFS
a. ITS SHOWS EXACT RUPEES WHUCH GOVERNMENT DECIDES.
 AD-WALORAM
a. IT IS IN PERCENTAGE.
 IMPORT QUATA
a. IMPORT LICENCENING
2. TARIFF RATE QUATA
b. IN QUATA TARIFF
c. OVER QUATA TARIFF
 WHY TO SUPPORT CONSUMER THROUGH IMPORT QUATA?
 OR HOW IMPORT QUATA SUPPORT CONSUMER? OR WHAT IS QUATA RANGE?
3. LOCAL CONTENT REQUIRMENT

ADMINISTRATIVE POLOCIES
 ANTI DUMPING POLICY
o DUMPING ONE PRODUCT TO THE ANOTHER COMPNIES.
 SUBSIDY-
 GOVERNMENT INTERVENTION

Government intervene in two interventions-

 Political
o To protect job
o National securities
 Chinese mobile company ,stealing Indian data
 Produce equipment for national securities
 Other than defense equipment resources like energy is also of national
securities importance.
o Retaliation
 Punitative trade relation
 Risky
o Consumer protection
 Hormone treated beef
 Maggi
 Lead painted toys from china
 Baby milk in china
o Human rights
o Foreign policy
 Rogue nation / state – those states who are not having conductive
relationship other nation.

 Economical
o Infant industries/ New industries
o Strategic trade policies
 FOREIGN DIRECT INVESTMENT (FDI)

Pattern

 Trend
 Direction
o USA to develop nations
o Eastern part of Europe
 Source
o United kingdom
 Form
o Green field investment
o Merger and Acquisition
 Change in service economy

IDEOLOGY IN FDI

 Radical view
o Country view is FDI is not good for the organization
o For ex- Colonization
 Free market view
o For ex- European nation
 Pragmatic approach
o For ex- Britain
 To many taxes
 Because of immigration
 BENEFIT AND CAUSE

HOST (TARGET) HOME

Benefits 1.Resource transfer
 Capital
 Human capital and
know how
 Production
technology
 Production
technology
 Management skill
2.Employment effect(
direct and indirect)

3.BOP and its effect

 CHAPTER

REGIONAL ECONOMIC INTEGRATION

Regional economic integration refers to agreement b/w countries in a geographic region to

reduce tariff and non tariff barrier to free flow of goods, services and factor of production b/w
each other , In theory regional economic integration benefit all the nation /member but in
practical scenario there are certain reservation on this philosophy.

LEVELS OF ECONOMIC INTEGRATION

 Free trade regions

o In free trade area all barriers to the trade of goods and services among
member’s countries are removed but members determines their own
trade policy with regard to non members.
 Custom union
o Custom union eliminates trade barrier b/w member’s countries and
adopts external trade policy. Aendian pact (Ex- Polivia , Columbia , Peru
and Ecuador)
 Common market
o In common market no barrier to trade b/w member’s countries, a
common external trade policy and free movement of the factor of
production.
 Economic union
o It involves a free flow of product and factor of production b/w members,
the adoption of common trade policy, common currency and common
monetary and fiscal policy ex- Europian union.
 Political union
THE CASE OF REGIONAL INTEGRATION

QUES- Should countries integrate their economies?

There are both economic and political argument supporting regional economic integration
generally many groups among the countries appeals the notion of economic integration. There
are 2 reasons to support it

 In regional economic integration , they believe although the reason will grow but at the
same time some part will enjoy greater benefit and some part will be at in receiving in
 They believe that regional economic integration will hamper national identity. Regional
economic integration only makes sense when the amount of trade created exceed the
amount of trade diverted.
 Trade creation