ASIA AND ECONOMIC GROWTH things they are relatively best at and trade

with others for the rest. Even if one country is

• Asia is an ancient land and largest continent in the world. better at making everything, both countries can still
- due to its rich history of early civilizations. benefit from trading if they specialize in what they
- Asia comprises 49 countries. do best.
- So that, the everyone can get more of what they
• Economic growth is an increase in the amount of goods need and want.
and services produced per head of the population over a • Michael Porter's national competitive theory,
period of time. developed in the 1990s, suggests that a country's economic
• India, one of Asia's ancient civilizations, has struggled growth relies on various factors. These include enhancing
economically since gaining independence from British rule factor endowments like demographics, climate, and natural
70 years ago. In 1947. resources.

- India's economy has struggled with various issues - "Competitive Advantage of Nations", explains how
such as poverty, infrastructure development, and countries gain and maintain economic success.
economic inequality in the decades following its - National competitive theory means that a
independence. country's ability to compete and succeed in global
- The term "British rule" refers to the period during markets depends on how well it can create and
which India was governed by the British Empire. sustain conditions that support innovation,
This period, known as the British Raj, lasted from efficiency, and productivity in industries.
1858 to 1947. It began after the British East India This involves factors like:
Company’s rule ended and the British Crown took • Resource Availability: Access to skilled labor,
direct control of India. infrastructure, and natural resources.
• Innovation: Ability to develop new technologies and
• India actively engages in international trade, ranking as improve processes.
the ninth largest global importer, with over 55% of its • Business Environment: Supportive policies,
GDP (Gross Domestic Product) attributed to international competitive practices, and strong institutions.
trade. Key sectors driving India's economic presence include
information technology, travel, and financial services,
• There are two main categories of international
aided by the Department of Trade's efforts.
trade—classical, country-based and modern, firm-
based.
- But now the India country country is the most
exported or exporter products to different countries The main historical theories are called classical and are
like the Petroleum products, gems and jeweler, from the perspective of a country, or country-based. By
textiles and garments, medicines, organic and the mid-twentieth century, the theories began to shift to
inorganic chemicals, machinery and explain trade from a firm, rather than a country,
equipment, iron and steel, cars, dairy perspective. These theories are referred to as modern and
products, and tea are among India's top ten are firm-based or company-based. Both of these
categories, classical and modern, consist of several
exports.
international theories.

(In simple terms: Mercantilism

Import: Bringing goods or services into a country Back in the 16th century, the theory of mercantilism was
from another country. For example, if India buys the first economic theory to be developed. The theory used
cars from Japan, those cars are imported into India. the amount of gold and silver a country had to determine its
Export: Sending goods or services from one wealth. Mercantilists believed that a country could increase
the amount of wealth it had by promoting exports and
country to another country. For example, if India
discouraging imports. One example of mercantilism is the
sells textiles to the United States, those textiles are rise of protectionist policies after the Great Depression, as
exported from India.) many countries reduced the value of their currency and
reduced imports.
• Countries in Asia and the Pacific are aiming to expand
their international borders to stimulate economic growth Absolute Advantage
through trade. Adam Smith offered people a new trade theory in the late
1700s, called absolute advantage, which looked at a
• Theory of international trade, particularly David
country's ability to produce a good more efficiently than
Ricardo's comparative advantage theory, suggests that another country. Smith argued that trade shouldn't be
even when one country has an absolute advantage over restricted or regulated by the government. In fact, trade
another, they can benefit from cooperation. To boost their between countries should happen naturally according to the
economies, countries should focus on their areas of market forces. His theory of absolute advantage reasoned
comparative advantage. that if a country could increase efficiencies, both countries
would benefit and trade would be encouraged.
- comparative advantage was introduced by David
Ricardo in 1817 to address the shortfalls in Smith's
theory of absolute advantage. comparative advantage Ricardo noticed that there are
- David Ricardo's comparative advantage theory countries that have an absolute advantage in many areas,
means that: Countries should focus on making where other countries have no advantages. However,
Ricardo pointed out that even if one country has an competitive advantage is a way that a firm can obtain a
absolute advantage over another country in production of sustainable edge over others and break down the
both products, both countries can still specialize and trade barriers to entry in their industry. There are many ways
can happen. The theory of comparative advantage focuses that firms can accomplish this, from research and
on the relative productivity differences, not absolute development to economies of scale, and much more.
productivity.
The difference between absolute and comparative Porter's National Competitive Advantage
advantage can be hard to distinguish. An example of Porter's theory states that a nation has a competitive
absolute advantage would be Michael Jordan's ability to play advantage in an industry if they have the capacity to
basketball. Jordan could also have an absolute advantage in upgrade and innovate.
typing, but it doesn't necessarily mean he has a
comparative advantage in typing. This is because it would The New Trade Theory helps explain growth of
cost him more than someone else to give up basketball to globalization and how government regulation plays a
type; therefore, another person has the comparative role in different industries.
advantage in typing. In determining international trade patterns, the theory
explains that some key factors are through network
Hecksher-Ohlin theory, also known as the factor effects that happen in certain industries and substantial
proportions theory, helps determine which products give economies of scale. In fact, the network effects and
a country an advantage over another. This theory economies of scale can be so significant they outweigh
focuses on how a country can gain a comparative the comparative advantage theory.
advantage over another through using factors that are
in abundance in the country to produce products. These
factors include labor, land, and capital that are in great
supply. The country would export goods that are in great
supply, and import goods that are short in supply but
high in demand.

Lesson Summary
All right, let's take a moment or two to review. As we
learned, mercantilism is a theory that states that the
wealth of a country is based on the amount of money it
has, which is impacted by imports and exports. We also
examined the theories of absolute advantage, which
looked at a country's ability to produce a good more
efficiently than another country, and comparative
advantage, in which there are countries that have an
absolute advantage in many areas, where other
countries have no advantages. And, finally, we learned
that the Heckscher-Ohlin theory is a theory that
determines a country's advantage based on the
production factors available in that country.

Modern International Trade Theory

There are many international trade theories, from
country-based or classical trade theories to modern
theories that focus on the firm rather than the country.
However, the historical theories of each country are just
as important as modern theories; they explain how
nations expanded around the globe and built their
wealth through trade.

Country Similarity Theory was developed by Steffan

Linder to explain the idea of intra-industry trade. Linder
proposed that consumers in countries with similar
stages of development will have the same, or similar,
preferences for domestic consumption.

Product Life-Cycle Theory

Back in the 1960s, Raymond Vernon developed the
product life-cycle theory to explain the manufacturing
success in America. This theory states that a product
life cycle has three stages:
1) New Product
2) Maturing Product
3) Standardized Product

Global Strategic Rivalry Theory

Based on the work of Kelvin Lancaster and Paul
Krugman, this theory focuses on multi-national
corporations and how they can get a competitive
advantage over other firms in their industry. A