Pattern of Trade & Trade Advantage in Transport Equipment Industry in India.
| Author | Manonmani, M. |
Introduction
International trade contributes to the growth of a country's economy in several ways. Some of these include the effects of import and export, specialization, increased productivity and improved infrastructure. The exportation of goods to other countries can contribute to the growth of the exporting country by increasing the earnings of that country. Another factor establishing a link between international trade and economic growth is the increase in productivity. When there is high demand for a product, the countries that produce such a product will automatically increase production in order to meet the demand for the product. This increase translates in to more revenue and an improvement in the economy of the country. The foremost principle of foreign trade, viz. the law of comparative costs , signifies that what a country exports and imports is determined not by its character in isolation but only in relation to those of its trading partners. According to Samuelson "Foreign Trade offers a consumption possibility frontier that can give us more of all goods than can own domestic production possibility frontier". The extension of foreign trade, according to Ricardo "will very powerfully contribute to increase the mass of commodities, and therefore, the sum of enjoyments". This will be true for each trading nation. In modern terminology, "trade is a positive sum game". The role of transport in economic development is usually discussed in relation to its contribution to the development of domestic trade. Globalization has changed this perception. The ability of a country, and particularly the more isolated communities within a country, to participate in trade depends on the quality of the transport and communication infrastructure that allows them access to the world trading system. If liberalization of trade can open new markets, appropriate transport infrastructure, timely delivery and the quality of services provided are essential elements in determining the competitiveness of products for global markets.
An efficient transport system is a pre-requisite for sustained economic development. It not only is the key infrastructural input for the growth process but also plays a significant role in promoting national integration, which is particularly important in a large country like India. The transport system also plays an important role of promoting the development of the backward regions and integrating them with the mainstream economy by opening them to trade and investment. The era of globalization since the late 1940s has dramatically changed the world's trading patterns as well as the measures employed by countries to survive in a world where trade is being liberalized. With the gradual reduction in trade barriers led by the process of globalization, more emphasis is now being placed on promoting export competitiveness. Competitiveness by any means is not a new issue, as it seems nowadays. This concept has become more fashionable because of the market liberalization and the emphasis in a more global economy. Competition used to be more localized within regions and nations. With increasing international trade, it applies everywhere. Competitors are not fully identified as they used to be and now they might come from faraway places, which was not the case previously.
For more than four decades theoretical and empirical researchers in the field of international trade have been keenly interested in two-way trade of products belonging to the same industry that is intra-industry trade (IIT), while theories of comparative advantage or Heckscher-Ohlin factor endowment focused on inter-industry trade. Ricardo's comparative advantage model states that countries with different comparative advantages engaging in trade will profitably benefit from it. The Heckscher-Ohlin model describes the basis of comparative advantage in terms of factor endowments. A country will export a commodity which utilizes its abundant factor and import a commodity which utilizes its scarce factor (Ali Kocyigit & Ali a en, 2007).
Both types of trade models assume that goods traded are homogeneous, and that a country will therefore either only export goods within the same industry, or only import these goods, but not simultaneously export and import goods within the same industry. However, a large portion of the output of modern economies involves differentiated rather than homogeneous products of the same industry that is intra-industry trade as opposed to inter-industry trade in completely different products. Therefore, conventional trade theories are deficient in this respect and cannot explain this type of emerging trade pattern. After the pioneering study by Grubel and Lloyd (1975) the initial key contributions in the theory of IIT study include Krugman (1979), Lancaster (l980) and Brander (1980).
Instead of specialization in an entire industry or activity, that is, inter-industry specialization, intra-industry specialization involves a country specializing in a narrow range of products within a given industry. Another corollary of IIT theory is related to economies of scale, principally because IIT occurs when each country with economies of scale produces only a limited range of products within an industry. Thus, IIT represents a simultaneous movement towards specialization in separate differentiated goods and achieves economies of scale in production, and thereby leads to two-way trade in products similar enough to be grouped in the same industry in standard industry classification schemes. As Krugman (1979) pointed out, IIT with these features produces extra gains from international trade because it creates a larger market. As a consequence, a country engaged in a narrower form of specialization can, via IIT, increase both productivity and the variety of goods available to domestic consumers.
The IIT phenomenon was first considered empirically when a group of European countries formed the European Common Market, which has now grown into the European Union and currently consists of twenty five countries. A large number of theoretical and empirical studies have been carried out to...
To continue reading
Request your trialCOPYRIGHT GALE, Cengage Learning. All rights reserved.
