Define foreign trade. How balance of payment can be balanced by a country? Explain the trends of foreign trade recent years.
Answers
Balance of trade is the difference between exports of goods and imports of goods. Balance of payments is the difference between inflow of foreign exchange and outflow of foreign exchange. The net effect of balance of trade is either positive, negative or zero. The net effect of balance of payments is always zero.
Forced Dynamism:
International trade is forced to succumb to trends that shape the global political, cultural, and economic environment. International trade is a complex topic, because the environment it operates in is constantly changing. First, businesses are constantly pushing the frontiers of economic growth, technology, culture, and politics which also change the surrounding global society and global economic context. Secondly, factors external to international trade (e.g., developments in science and information technology) are constantly forcing international trade to change how they operate.
2) Cooperation among Countries:
Countries cooperate with each other in thousands of ways through international organisations, treaties, and consultations. Such cooperation generally encourages the globalization of business by eliminating restrictions on it and by outlining frameworks that reduce uncertainties about what companies will and will not be allowed to do. Countries cooperate:
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i) To gain reciprocal advantages,
ii) To attack problems they cannot solve alone, and
iii) To deal with concerns that lie outside anyone’s territory.
Agreements on a variety of commercially related activities, such as transportation and trade, allow nations to gain reciprocal advantages. For example, groups of countries have agreed to allow foreign airlines to land in and fly over their territories, such as Canada’s and Russia’s agreements commencing in 2001 to allow polar over flights that will save five hours between New York and Hong Kong.
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Groups of countries have also agreed to protect the property of foreign-owned companies and to permit foreign-made goods and services to enter their territories with fewer restrictions. In addition, countries cooperate on problems they cannot solve alone, such as by coordinating national economic programs (including interest rates) so that global economic conditions are minimally disrupted, and by restricting imports of certain products to protect endangered species.
Finally, countries set agreements on how to commercially exploit areas outside any of their territories. These include outer space (such as on the transmission of television programs), non-coastal areas of oceans and seas (such as on exploitation of minerals), and Antarctica (for example, limits on fishing within its coastal waters).
3) Liberalization of Cross-border Movements:
Every country restricts the movement across its borders of goods and services as well as of the resources, such as workers and capital, to produce them. Such restrictions make international trade cumbersome; further, because the restrictions may change at any time, the ability to sustain international trade is always uncertain. However, governments today impose fewer restrictions on cross-border movements than they did a decade or two ago, allowing companies to better take advantage of international opportunities. Governments have decreased restrictions because they believe that:
i) So-called open economies (having very few international restrictions) will give consumers better access to a greater variety of goods and services at lower prices,
) Transfer of Technology:
Technology transfer is the process by which commercial technology is disseminated. This will take the form of a technology transfer transaction, which may or may not be a legally binding contract, but which will involve the communication, by the transferor, of the relevant knowledge to the recipient. It also includes non-commercial technology transfers, such as those found in international cooperation agreements between developed and developing states. Such agreements may relate to infrastructure or agricultural development, or to international; cooperation in the fields of research, education, employment or transport.
5) Growth in Emerging Markets:
The growth of emerging markets (e.g., India, China, Brazil, and other parts of Asia and South America especially) has impacted international trade in every way. The emerging markets have simultaneously increased the potential size and worth of current major international trade while also facilitating the emergence of a whole new generation of innovative companies. According to “A special report on innovation in emerging markets” by The Economist magazine, “The emerging world, long a source of cheap la, now rivals the rich countries for business innovation”.
Foreign trade is exchange of capital, goods, and services across international borders or territories. In most countries, it represents a significant share of gross domestic product (GDP).
FOREIGN TRADE
At the time of independence raw material was exported from India to Britain in abundance, on the other hand finished goods from Britain were imported into India.
Notably our balance of trade was favourable (exports > imports)
After independence India’s foreign trade recorded a noticeable change such as.
(i) Decline in percentage share of agricultural exports.
(ii) Increase in percentage share of manufactured goods in total exports.
(iii) Change in direction of export trade and import trade.
(iv) Decline of Britain as main trading Partner