International trade

A PRESENTATION BY
Group 10
Harpreet
Madhusmita
Sarvesha
Sudipta
Sumanta
Yogesh
 TOPICS FOR DISCUSSION

• Introduction
• The world of trade
• Theory of absolute advantage
• Theory of comparative advantage
• Theories of international trade
• Terms of trade
• Quota, tariff and protection
• India – The story so far
INTRODUCTION

• What is international trade ?

International trade is exchange of capital, goods, and
services across international borders or territories

• Why international trade ?

The fact remains that the natural resources of earth

are not evenly distributed
The world of international trade
Growth in world real GDP and world merchandise exports

Growth in
merchandise exports

Growth in real GDP

Source: Trade Statistics, WTO (www.wto.org)

 The theory of absolute advantage
(Adam Smith)

• A country has an absolute advantage over another

in the production of a good if it can produce it with
less resources than the other country.
• Example
 The theory of comparative advantage
(David Ricardo)

• A country has a comparative advantage over

another in the production of a good if it can
produce it at a lower opportunity cost i.e. if it has to
forgo less of other goods in order to produce it.
• Example :

Output /day of work

Country Vials of vaccine No of TV sets
USA 6 3
KOREA 1 2
Theories of trade

• Theorem one - Heckscher-Ohlin trade theorem :

A country tends to specialize in the export of a

commodity whose production requires intensive use of
its abundant resources and imports a commodity whose
production requires intensive use of its scarce
resources
 Terms of trade

It is defined as the quantity of domestic goods

that must be given in exchange for one unit of
imported good
Measures of terms of trade :
• Net barter terms of trade
• Gross barter terms of trade
 Tariffs , quotas and voluntary restraint
agreement

Tariffs : When Government imposes tax on imported

goods into a country
Quota : A quota sets a limit, a maximum, on the
amount of a given good that can be imported
VRA : When a country ask another country to
volunteer to restrict its firm’s exports to the former
country
Arguments for Trade Barriers

• High Transition Cost

• Infant Industry Arguments
• The National Security Arguments
• The Retaliation Arguments
• The foreign subsidies Arguments
• Environment & Labour standards Arguments
HOW TO REDUCE TRADE BARRIERS

• Unilateral Disarmament

• Multilateral Negotiations

• Regional Trading Areas

 India’s Rank
Factor Rank Factor Rank
Population 2 Milk production 1
Area 7 Butter and ghee 1
production
Arable land 2 Sugar production 2
Irrigation area 1 Merchandise exports 31
Tractors in use 2 Merchandise imports 26
Nitro fertiliser consumption 2 Service exports 22
Rice production 2 Service imports 19
Wheat production 2 GNP 12
Tobacco production 2 GNP at purchasing 4
power parity
Tea production 1
INDIA’S MAJOR TRADING PARTNERS.

• USA.
• UK.
• GERMANY.
• FORMER USSR.
• JAPAN.
• IRAN.
• IRAQ.
• AUSTRALIA.
• CANADA.
EXPORTS
Exports

SHARE OF UK
AND USA
40% USA and UK
60% Rest of the w orld

1950-51

Exports

23%
USA and UK
Rest of the w orld
77%

2000-01

USA - OUR PRINCIPAL BUYER

IMPORTS

SHARE OF USA & Imports

EUROPE
35% USA

ROW
65%
• USA - PRINCIPAL
1965-66
SUPPLIER
Imports

• EU ACCOUNTS 8%
FOR 24% OF USA

IMPORTS
ROW
92%

2000-01
 India’s trade policy

• Phase one : 1951 - 1985

Protective trade policy
• Phase two : 1980 - 1991
Gradual liberalization of restrictive trade policy
• Phase three : 1991 onwards
The phase of post economic reforms
 The world Trade Organization

• Founded in 1995

Regulations :
 Non – discrimination
 Reciprocity
 Fair competition
 Binding tariffs
Thank you