International Trade and Market

· The pure theory of international trade
The pure theory of international trade deals with equilibrium phenomena or trade. It seeks to analyse and expose the condition of equilibrium in real terms. It probe into the economic couses and consequence of the international trade. The monetary theory of foreign trade is confronted with the monetary mechanism of the international economic transaction. Including financial transaction and capital movement. It primarily deals with the determination of exchange rates and seeks to examine the methods and processes of adjustment in the balance of payments equilibrium.

· The theory of absolute advantage
The classical theory of international trade is known as the theory of comparative cost. This theory is simply an application of the principle of division of labour to the production of good by different countries. The classical theory averred that international trade develops with geographical (countrywise) specialization in the production of various goods which is reflected through the differences in their comparative costs of production between any two countries.

· Comparative Cost Advantage = David Ricardo
This theory is originated as an improvement and development of the eighteenth century criticism of the mercantilist policy. The docrine of this theory continue to command attention because its show analytically the superiority of free trade over protection.
The classical theory of comparative cost was developed by Davis Ricardo, according to this theory the value of any commodity is determined by its labour will produce that determine their present or past relative values.

· Modern international trade (General Equilibrium Theory)
The view on Bertil Ohlin “
1. the immediate couse of inter regional or international trades is the different in relative commodity price in the two region.
2. The different in relative commodity price are due to the scarcity of the factor of production in two region or countries.
3. In international trade implies an exchange of abundant factor for scantely supplied factor. The movement of goods from one region to other region or country take place only because there is scarcity of factor in one region which result in higher price this phenomenon attract the productivity factor from abundant region to the scarcity region.

· Heckscher – Ohlin Theorem
A. Heckscher view of “
That though comparative cost different is the basis of international trade, the root causes is the condition which produces this difference. As a matter of fact, the differences in comparative costs advantage occurs because of “
· The different in relative scarcity (and so relative price ) of factor of production in the two country.
· The input of different factor proportion required in the production function of different commodity .
B. Ohlin view of “
The immediate cause of international trade is the differences in commodity price and differences in factor of endowments cause factor price to differ.(since factor price are the ultimate cost of production costs and thus commodity price will differ in different countries).

· Factor Price Equalization Theorem
It may be stated as “ other thing being equal, free international trade of commodities like factor movement, causes absolute return or price of factor to be identical in each participating countries. When the absolute return becomes equal then relative factor prices must be identical under the homogeneity condition.

· The Rybezynki Theorem
This theory is seeks to examine the effect of change in the factor supplies in one of the two trading countries in their trade relationship.
This theory also show that the change in factor supply in the country comes in the way of factor – price equalization. Further, when the country tends to increase its exportable goods in supply due to increase in the abundant factor supply its term of trade will deteriorate. For instance as in our illustration when the country produce more of cloth and less of wine. Its export supply of cloth will increase and import demand for wine will also increase this would adversely affect its term of trade assuming no change in the condition of its trading partner.

· Factor Causing Intra – Industry Trade
A number of factors can be attributed to the emergence of intra-industry trade such –
1. Trade in homogenous goods for re-export. A country may import goods in bulk in order in electronic good importing from Japan and exporting to Malaysia, Thailand, Indonesia, etc is of this type.
2. They area between the two cost ratios determine the region of mutually beneficial trade for the country.
3. Actual trade will depend on the relative demand factors for the concerned goods in two countries.
4. Agricultural goods are exported in post-harvest and imported in harvest season by a country.
5. Cross border trade.
6. Differentiated products.

· Criteria of measuring the gain from trade
1. Reduction in the cost of production
2. Enhancement of the real income
3. The nature of term of trade

· Term of trade
The rate at which one country goods exchange againt those of another is referred to as the term of trade.
Term of trade depend on the prices of commodity entering into foreign trade.







· Concept of term of trade - Mier
1. Those term of trade which relate to the real – ratio of international exchange between the commodities. And in this group discussed are “
* Net barter term of trade
* Gross barter term of trade
* Income term of trade
2. Which is relate to interchange between the productive resource, and there are “
* Single factoral term of trade
* Double factoral term of trade
3. Those term of trade which interpret the gain from trade in term of utility analysis and there are “
* Real cost term of trade
* Utility term of trade

· “Trade as the engine of the economic growth”
D.H Robertson was profound this statement and the important is that “
1. Trade provide material
2. Trade is the meant and vehicle for the dessimination of technology knowledge
3. Trade is also vehicle for international movement of capital
4. Free international trade is the best anti-monopoly policy and the best guarantee for the maintenance of a healthy degree of free competition.

· Tariff
Tariff in international trade mean or refer to the duties or taxes on international traded commodity when they cross the national border
Classification of tariff
1. On the basis of origin and destination of the goods crossing the national border and there are “
A. Export duties
B. Import duties
C. Transit duties
2. Reference to the basis for quantification of the tariff and there are ‘
A. Ad-Valorem duties
B. Compound duties
3. Which respect to its application between different countries, and the system may classify “
A. Single-column tariff
B. Double-column tariff
C. Triple-column tariff
4. with reference to the perpouse they serve, tariff may classify to
A. Revenue tariff
B. Protective tariff
C. Countervailing and anti-dumping duties







· Effect of tariff à Import Duties
1. Protective effect
2. Consumption effect
3. Redistribution effect
4. Revenue effect
5. Income and employment effect
6. Competitive effect
7. Term of trade effect
8. Balance of payment effect

· Non Tariff Barrier NTB
It also call new protectionism
Non tariff barrier has two categories
A. Include those which are generally used by developed country to prevent foreign exchange outflow, or those which result from their chosen strategy of economic development
B. Those which are mostly used by developed economist to protect domestic industry which have lost international competitive and or which are politically sensitive for government of these country.

Note” NTB is less transparent and difficult to identify.

· Quantitative Restriction (QUOTA)
Quota are an important, it is mean of restricting import and export and also represent a ceiling on the volume of import/export.

· Import Quota
There are five type of import quota, including import licensing”
1. Tariff quota
2. Unilateral quota
3. Bilateral quota
4. Mixing quota
5. Import licensing

· Balance of payment
It is mean an excess of payment over the receipt.
Is systematic and summary record of a country’s economic and financial transaction with the rest of the world and over period of times.

· Component of balance of payment
1. Current account
2. Capital account
3. Unilateral payment
4. Official reserve asset account

· Kind of disequilibrium in balance of payment
1. Cyclical disequilibrium
2. Secular disequilibrium
3. Structural disequilibrium

· Cause of disequilibrium in the balance of payment
1. Cyclical fluctuation
2. Huge development and investment
3. Rapid economic development
4. A high increase in domestic production foodstuff
5. High population and high birth in poor country
6. Demonstration
7. International borrowing
8. Different demand

· World Bank
Purpose of World Bank is to tackle the problem of international investment
And the major function are –
1. To assist in the reconstruction and development of the territories of its member
2. To promote private foreign investment
3. To promote the long term balance growth of international trade
4. To arrange loans and guaranteed by it in relation to international loan





























Ir_ones
Preparing for the final examination of MA Economic at Raja Balwant Singh College (RBS College) Agra University, Agra- India.