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Economics of Global Trade and Finance Semester 1 Notes

In: Other Topics

Submitted By Pradnya23
Words 2566
Pages 11
Module 1: Commercial policy
Origin of Commercial Policy
Ricardo in 1817 proposed the theory of comparative cost advantage which brought out the capacity of one nation to produce more of a good with the same amount of input than another country.
To prove Comparative cost advantage in India arises due to a billion people having advantage in production of goods or services that require large amounts of labor. Factors like ability to speak English, low labor costs due to large workforce, cheaper internet, and telephone communications add to the advantage.

International trade cycle
The commercial policy adapts a change as per the changing international trade cycle. The international trade shows stages like emerging exports with mass production followed by foreign competition and finally competition from imports.
1. Exports May be only manufacturer of new product Overseas customers learn of product, export market develops

2. Foreign production Export volume grows Production technology becomes stable Reduced costs for transportation Exports diminish

3. Foreign competition Foreign manufacturers gain experience Compete in export markets

4. Import competition Foreign producers obtain economies of scale Compete in quality and undersell domestic company in domestic market.
Due to this dynamic business setting, the trade policy has to emerge and adapt it self to international demands and cause economic development. Comparative advantage theory of David Ricardo was the basis of free trade policies. Opponents of these policies argue that comparative advantage has lost its importance in a globally shrinking world. It is commonly believed Tariff and Non-tariff barriers, Miscellaneous Protection Techniques – Dumping, Subsidies, Cartels, and Commodity Agreements that free trade developed o the model of comparative advantage compels trade on less…...

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