Transportation and Communication

• Uneven distribution of natural resources, differences in production,

globalization, increasing tendency of people towards modern life style
• The transport and communication play a vital role in the economic
development. The development of occupations like agriculture, industries,
trade, and tourism depend on the transport and communication system
• Transportation is useful to carry the people from one place to another for
various reasons and purposes. It also carry raw materials to industries and
provide finished products to the areas of demand.
• Transportation and communication network system makes a ‘whole nation’
and to a considerable extent the ‘whole world’ into a ‘single market’.
• Even a big world into a small territory
Transportation and Communication…
• The easy contacts and advertisement of goods can be made with the
communication.
• Helps in the economic development and globalization.
• Communication provides different kinds of services to the people.
Transportation and Communication…
• The transportation is being done by the automatic vehicles which
include trucks, motors, railways, ships, boats, aeroplanes, etc.
Types of Transportation
• Transportation routes are of four types:
1. Road transportation
2. Railway transportation
3. Water transportation
4. Air transportation
 Advantages of Road Transport
1. Quick transport is possible .
2. Transport of goods becomes smooth.
3. Road transport is suitable in the hilly-mountain region than the
railways.
4. It has great flexibility in services (door to door service)
5. For short distance travel, the road transport proves very suitable and
faster.
7. Roads are very important for tourism. The tourist centers even in
remote areas can be connected.
8. The people, suffered in the natural calamities, can be helped in time
through road transport.
factors affecting the development of road
transport
• A) Geographical factors-Relief conditions, Extensive water- logged
areas, straits and big rivers, Deserts and snow fields, Climate, Land,
Dense forest
• B) Economic factors-Minerals, Industries etc.
Railways
Advantages of railways
• The railway service is more beneficial in many ways:
1. The railway transport is quicker than road or water ways.
2. The railways carry a big amount of freight and passengers at one time.
3. Carrying of heavy freight like machinery steel etc. is possible by rail
transport.
4. The mining and industrial development is only possible with the
development of railways.
• 5. To carry freight and passengers at a long distance or from one corner to
another corner of a country or continent, the railways play a successful role.
The main factors affecting the development
of railways
• A. Geographical factors-Relief, Climate
• B) Economic factors-Mineral exploitation, Industrial development
Water Transportation
Advantages of water ways
• The water transportation is beneficial in many ways.
1) The water routes are not to be built and maintained and hence less
costly than other forms of transport.
2) The tonnage carried through the water ways or ships is much bigger
in proportion to trains.
3) It is the cheapest form of transport.
4) The inland regions can be served through lakes or rivers
i.e. Rhine river transport, Lakes
in North America.
Factors affecting the water ways
a) Nature of sea board
b) Depth of water
c) The presence of ice
d) Violent winds and fogs
e) The availabilities of fuel and water
Air Transportation
• Advantages of Air Transport
1. The major advantage of air transport is its high speed that saves time.
2. It is most luxurious service.
3. It is very useful for long distance travel.
4. Air transportation provides services to the remote and isolated areas.
5. Businessmen, administrators, scientists can fly across continents to
conduct meeting and conferences.
6. Air transportation has helped in the development of tourism
tremendously.
7. It has greater importance in defense.
Satellite Communication:
• In the 20th century, particularly after Second World War, the use of artificial
satellites for communication has been increased.
• Due to this, the communication process became very easy. The developed
countries started launching the satellites in the space and receiving
communication effectively from them.
• For that, a technique of using the electro magnetic waves in the air
developed. Along with the communication, a technique of collecting
information about the atmosphere, natural calamities, forests in remote
areas and minerals on earth’s surface developed.
• The broadcasting of news, sports and various programmes over the world
started with the help of television, computer and internet through the
satellite. The countries such as U.S.A., Russia, U.K., Germany, France, China
and India achieved an important place in the satellite communication sector.
• India, too, has made a tremendous progress in the satellite communication
during the last three decades.
 Means of satellite communication
• 1. Mobile Phones – The telephonic communication started with the help of
wires on land which improved with the satellites in the form of mobile
phones.
 Worldwide Top 5 Smartphone Sales to End Users by
Vendor in 3Q20 (Thousands of Units)
Vendor 3Q20 3Q20 Market Share 3Q19 3Q19 Market Share 3Q20-3Q19
Units (%) Units (%) Growth (%)

Samsung 80,816.0 22.0 79,056.7 20.3 2.2

Huawei 51,830.9 14.1 65,822.0 16.9 -21.3

Xiaomi 44,405.4 12.1 32,927.9 8.5 34.9

Apple 40,598.4 11.1 40,833.0 10.5 -0.6

OPPO 29,890.4 8.2 30,581.4 7.9 -2.3

Others 119,117.4 32.5 139,586.7 35.9 -14.7

Total 366,658.6 100.0 388,807.7 100.0 -5.7

 Total Population
Smartphone
Smartphone Users Smartphone Users
Country Penetration
1. China 1,439,324,000 63.4% 911,924,000
2. India 1,380,004,000 31.8% 439,424,000
3. United States 331,003,000 81.6% 270,001,000
4. Indonesia 273,524,000 58.6% 160,232,000
5. Brazil 212,559,000 51.4% 109,339,000
6. Russia 145,934,000 68.5% 99,934,000
7. Japan 126,476,000 59.9% 75,772,000
8. Mexico 128,933,000 54.4% 70,139,000
9. Germany 83,784,000 77.9% 65,236,000
10. Vietnam 97,339,000 63.1% 61,374,000
11. United Kingdom 67,886,000 78.9% 53,583,000
12. Bangladesh 164,689,000 32.4% 53,295,000
13. Iran 83,993,000 62.9% 52,812,000
14. Turkey 84,339,000 61.7% 52,062,000
15. France 65,274,000 77.6% 50,656,000
16. Italy 60,462,000 75.9% 45,920,000
17. Philippines 109,581,000 37.7% 41,306,000
18. Pakistan 220,892,000 18.4% 40,593,000
19. South Korea 51,269,000 76.5% 39,197,000
20. Thailand 69,800,000 54.3% 37,879,000
Means of satellite communication……
• 2. Television – It is also one of the advanced and revolutionary
communication media in the world. A man sitting in any corner of the
world and having a satellite access can see or communicate with
other people. It is audio-visual media.
• The following are the important countries having more number of TV
sets for per 1000 population.
Means of satellite communication……
• 3. Computer – This ‘mechanical brain’ further made a revolution in
the communication system. Today, the computers have become a part
of life of the people. It is an integral part of the institutions in various
sectors in the modern age. Truly, the world has become smaller
because of the computers.
Computer Network
• The computer changed drastically the communication sector. The capacity of
computer to store the information is tremendous.
• Various activities in day today life are carried out with the help of computers.
• The works can easily be carried out with computers in the sectors of agriculture.
Industries, trade, education, administration, medicine, cinema, transportation
and communication, etc.
• A network of computers in various countries can be connected and any kind of
information can be obtained through internet.
• E-mail service can be provided. Persons at different locations in the world can
inter-communicate through teleconferencing.
• The educational programmes can be sent to any country.
• The computer aid can be taken to have a quick guidance in medical field.
• The correspondence and exchange of records can be made through E-mail
services.
Means of satellite communication……
• 4. Internet – A worldwide computer network is called Internet. Any
two computers on the internet can communicate to each other.
• Each computer on the internet has an address which is universally
recognized throughout the network.
 Globalization
• Development of technology, expansion of quick transportation
facilities and advancement in the field of communication, the
production and services from any part of the world can be made
available to any other part of the world.
• Globalization is playing a vital role in solving the problems related to
various international affairs.
• Almost all nations have tried to bring their economy towards the
globalization through the process of liberalization and privatization.
Globalization..
• ‘Globalization means to expand the economic transactions beyond the political
boundaries of the nation.’ or
• ‘The unification of the economies of the different nations means the globalization.’
• “Globalization is the internationalization of the production, distribution and
marketing of different articles and services.” (Harris)

• Free marketing system is accepted, the restrictions of the government are

lessened and the financial assistance is also lessened.
• The restrictions on the import are lessened and the export is motivated.
• Globalization is making economic integration of the world and the world is
becoming a global village
Trends of Globalization
• Process of globalization gets momentum from 1970s with the efforts
of MNCs and U.S.A.
• Liberalization before sanctioning any financial help
• Governments are trying to develop suitable environment for the
development and growth of private sector
• To develop healthy competition and proper functioning of markets.
• Globalization leads to increase interdependence of world economies.
• Availability of information and marketization are the most important
pillars of globalization
Trends of Globalization…
• Reduced cost of transportation and communication help for the development and
world wide spread of globalization.
• Development of technology reduced time and distance which is responsible for the
reduction of expanses on international trade and investment.
• Countries are slowly reducing their various non-tariff and tariff barriers by
accepting the frame work of organizations like GATT and WTO.
• Multinational corporations (MNCs) are responsible for the mobilization of
globalization.
• From 1980 to 2000 average daily transaction of foreign exchange increased six
times and became of 1200 billion US dollars.
• Developed countries and MNCs are shifting labour oriented industries in
developing nations.
Impact of Globalization
1. Improvement in the international co-operation
2. The availability of international market
3. Increase in foreign investment
4. Motivation to economic development
5. The world is getting closer
6. Unification of the world
7. Development of the competition Power
8. Increase in the international trade
9. Proper utilization of productive capacity
10. Change in peoples' tendency
11. Exchange of modern technology
12. The improvement in the managerial skills
13. Expansion of the big companies
14. Increase in the mobility of the workers and productivity
 Demerits of Globalization
1. Increasing bankruptness
2. Deadly competition
3. Hold of rich countries on global economy
4. Growing luxuriousness
5. Monopoly of the Multinational Companies
6. Negligence towards basic facilities
7. Loss of the developing countries
8. Obstacles in the way of foreign investment
9. Decline of natural resources
10. Protests of workers' organizations
11. Adverse effect on Agriculture
12. Hypocritical policy of the developed countries
13. Cultural effects
14. Imbalance in development
Market System
• Interdependence lead to the development of exchange. Economic and
technological development leads to surplus production.
• To fulfill needs of each other people started to exchange the
production.
• To fulfill our various needs we bring various goods from market.
• Competition in market keeps prices of goods and services low which is
beneficial for consumers.
• Development of any region is largely depending on the development
of market.
• Study of market helps for planning and development of region.
Market System..
• The term Market is derived from the Latin word ‘marcatus’ which
means 'merchandise', 'ware-traffic', 'trade' or 'a place where business
is conducted.‘
• "A market consists of all the potential customers sharing a particular
need or want who might be willing and able to engage in exchange to
satisfy that need or want."
MARKET STRUCTURE
• Market structure depends on the functional interrelationship
between the various firms which are operating in same market.
• Firms operating in the same market are competitors or rivals of each
other.
• Market structure refers to the extent and the way in which various
firms constituting a particular market are functionally interrelated
with each other.
TYPES OF MARKET STRUCTURE
• Types of market structure are as follows:
A) Perfect Competition
B) Monopoly
C) Imperfect Competition
i) Monopolistic Competition
ii) Oligopoly
iii) Duopoly
iv) Bilateral Monopoly
Perfect Competition
• The market structure in which large numbers of firms are operating is
called perfect competition. In this market structure number of buyers
and sellers are very large.
• There is no rivalry among the various individual firms which are
operating in the same market.
Monopoly

• In monopoly market structure there is only one seller/producer of the

product is present in whole market. For this single seller/producer
there is no competition in the market.
• The entry of the new firms to the industry is completely blocked.
Monopolistic Competition
• In Monopolistic Competition market structure large number of
producers or sellers operates in same market.
Oligopoly -

• In Oligopoly market structure very few numbers of sellers operate in

the same market.
Duopoly-

• Duopoly is a special case where there are only two sellers which are
completely independent and does not have any kind of agreement
among them.
• But a change in the output and cost made by one seller will affect the
other seller.
Bilateral monopoly
• In Bilateral monopoly markets structure only single producer
(Monopolist) and single buyer of that product is present in the
market. Producer does not have an output supply function relating
price and quantity while buyer does not have an input demand
function.
SIGNIFICANCE OF MARKET
1) Market helps consumers to satisfy their needs of various goods and services.
2) In market various goods from national and international producers are made
available which gives freedom to consumer to select and use the product as per his
need and economic capacity.
3) The development of market supplies required goods and services to consumers.
4) Competition in the market reduces prices of goods and services.
5) Market provides goods to consumers which changes their life style with great
improvement.
6) Market gives freedom to consumers in selecting goods and bargaining the price
of the goods.
7) Market gives motivation to the economic development.
SIGNIFICANCE OF MARKET….
8) People from different culture, religion, customs and traditions come together
at market place which brings cultural exchange.
9) Exchange of ideas and thoughts at market place help to develop tolerance and
broad view in the society.
10) The development of market helps to increase mobility in the society.
11) Market helps producers to understand consumers’ trend which helps him to
make improvement in the quality of his product.
12) Development of market helps to increase communication between
producers, traders and consumers.
13) Competition in market helps to improve the quality of products.
14) Development of market provides stability to producers.
15) Development of market helps to the economic development of the nation.
16) Competition in market helps to stabilize the prices.
17) Development of the market increases investment in various industries and
Classification of Markets
• Development of any region leads to the increase in number of market
centers Markets at villages are mostly weekly or seasonal while urban
markets are daily and weekly
• Classification of Markets is done on the various bases such as motives
behind market, nature of market and many other factors.
Bases for classification of markets are as follows.

A) Geographical area wise classification

B) Classification on the basis of nature of goods
C) Classification on the basis of volume or size of trading
D) Classification on the basis of type of product
E) Classification as organised and unorganised markets
F) Classification on the basis of delivery time
G) Classification on the basis of Dominance
H) Classification on the basis of Competition
I) Classification on the basis of Significance
Geographical area wise classification
• i)Local Market: The market in which buyers and sellers are from the
same village or town is called as Local market
• ii) Regional Market: The market in which buyers and sellers are from
the few surrounding villages or towns is called as Regional market.
• iii) Interstate Market: Market of some goods is spread in more than
one state such market is called as interstate market.
• iv) National Market: In national market transactions taking place,
within the political boundaries of the nation.
• v) International Market: This is the widest market. In this market
exchange of product take place at international or global level.
B) Classification on the basis of nature of
goods
• i) Agricultural goods market:
• In these markets there is exchange of agricultural production
• ii) Consumer goods market:
• The market in which end-users purchase goods for their own
consumption is called consumer goods market.
• iii) Industrial Goods Market:
• Industrial goods include raw material, equipment, heavy machinery,
parts, industrial services etc. these goods are not directly consumed
by ultimate consumers.
C) Classification on the basis of volume or
size of trading
• i) Retail Market:
• Retail market is formed by small traders or retailers and consumers. In
this market the volume and value of each trading is relatively small
• ii) Wholesale Market :
• In wholesale market bulk purchasing and selling takes place. Mostly
small traders, retailers, general merchants etc.
D) Classification on the basis of type of
product
• i) Money Market
• Money market is a short term credit market. This market deals only in short term
finances. Acceptance market, collateral loan market, Money market and bill or
discount market are the constituents of money market
• ii) Goods Market :
• All the characteristics of the markets classified on the basis of volume or size of
trading and those of the area-wise classified markets are observed in goods
market. further subdivided as (i) Agricultural goods market, i.e. Produce exchanges,
(ii) Manufacturing goods market, (iii) Bullion market, (iv) Market for services.
• ii) Capital / financial Market:
• This market deals with shares, stocks, bonds, debentures, loans, credit papers etc.
i.e with capital resources.
E) Classification as organised and
unorganised markets
• i) Organised/Regulated market:
• Organised market is governed by the constitution. This constitution is
prepared by the members’ of organised market.
• ii) Unorganised/Unregulated market:
• Unorganised market may be a wholesale or retail market were any
one can make a transaction.
G) Classification on the basis of delivery
time:
• i) spot market:
• Spot market is also known as cash market. In this market transactions
are made side by side or simultaneously.
• ii) Future market :
• Future market is also known as forward market were speculative
transaction taking place. In this market an agreement to purchase or
sale is made at delivery to be made in future and price also to be paid
in future
G) Classification on the basis of Dominance
• i) Sellers' market :
• This market is dominated by seller. Customers are taken for granted.
Seller can dictate terms to the buyers. Customer care and satisfaction
is neglected
• ii) Buyers’ Market:
• This market is dominated by buyers. Competition and mass
production due to industrial revolution leads to emerge this market.
Customers’ service, satisfaction, care, choice and delight are most
important in this market.
H) Classification on the basis of Competition:
• i) Perfect Market:
• In perfect market large numbers of buyers were present, there is free
and equal opportunity for entry and exit of any buyer or seller,
products are homogeneous in nature.
• ii) Imperfect Markets :
• In this market whole market for a product is divided into various
segments. Here customers are convinced that the each product is
different by using effective branding and product-differentiation.
I) Classification on the basis of Significance
• i) Primary Market:
• In this market agricultural products are sold at village levels by farmers.
• ii) Secondary Markets:
• A market for semi-finished or manufactured or processed products is
called as Secondary Markets.
• iii) Terminal Markets :
• In this market finished products are finally sold to consumers. The
finished cloth, furniture, electronic goods, cereals etc. are ready for
consumption
Market system
 Factors affecting market system
1) Climate- Climate has its own impact on both production and demand.
Some products are produced in particular climatic condition but the
demand for these products is universal. For example tea and coffee are
produced in tropical region but demand for these products is from all
over world.
• Change in climatic condition also affect the demand of some products
e.g. demand of ice cream increases in summer season while demand of
woolen cloths increases in winter season.
2) Population-Increase of population in any region leads to the increases
in the number of customers and demand of various products.
Geographical factors…..
3) Transportation- Transportation facilities are increased and improved
with the time. Carrying capacities and speed of vehicles is increased.
Development of transportation facilities also leads to traffic jams and
congestions. All these factors associated with transportation facilities
affect the market system.
4) Producer- producer is one of the important elements of market
system. Producers in market are classified as small, medium and large
producers. Large change in the number of producers in market affects
the market system.
Geographical factors…..
5) Consumer-consumer is the end user of the product. Customer
changes his demand as per his need, culture, tradition and climate.
Change in demand of product affect the production of that product.
Changes in the customers demand affect the production and sellers in
market which ultimately affect the market system.
6) Finance facility- Finance is required for producers to increase the
quality and quantity of their production by using modern technology.
While finance given to customers increases the demand of various
products in the market. Thus finance facility has its own impact on
market system.
Geographical factors…..
7) Price- Price of any product depends on cost of production, cost of
transportation and the profit of producer. If the price of product is
increased it reduces the demand of that product and vice versa. This
relation between demand and price affect the market system.
8) Government Policy- Government policy affects the production.
Increase in the tax causes increase in the production cost which may
reflect decrease in the demand of the product. If government gives
some concessions on electricity, water or decrease of taxes it reduces
cost of production and also price of the product. This leads to increase
in demand of product. Thus Government policy affects the market
system.
Geographical factors…..
9) Change in trading system- Commercial activity and trading system
affect the market system. Introduction of private sector in trade, spread
of super market concept etc. affect the market system.
10) Other factors- Increase in the number of industries, advertising,
technological development, peace and governance, governments
controls, trade organizations, increase in production, change in
customers demand and habit, consumers awareness, consumer
protection laws, quality of product and safety features, changed
regional plan, environmental impact etc also affect the market system.
International Trade
• In the beginning, the trade was carried out in a limited area. But it
expanded with the development of industries and transport and
communication. The trade shifted from local to regional, national and
international levels.
• two types of trade.
1. National Trade : The trade that occurs within the boundaries of a
nation is known as a national trade. This trade is limited to one country.
2. International Trade or Foreign Trade : In the expansion of trade when
it crosses the boundaries of a country nearby or countries at distant
locations is known as international trade.
International Trade….
• When the commodity is sent from one country to another is called as
‘export trade’, while a commodity, brought from other country is known as
‘import trade’
• By the measurement of import trade and export trade, the international
trade consists of the following trade types.
1. Balanced Trade : When the trade-value of import and export trade of a
particular country is equal, it is known as balanced trade.
2. Adverse Balanced Trade : When the import trade-value is more than the
export trade value, it is known as adverse balanced trade.
3. Favourable Balanced Trade : When the import trade-value is less than the
export trade value, it is known as favourable balanced trade..
Importance of International Trade
1. A commodity can be consumed irrespective of its production in the country.
2. The goods are available with the reasonable rates through international
trade.
3. A specialization in a particular production may be done.
4. Different commodities or goods may be chosen as per our liking.
5. The calamities can be faced by importing the commodities in such
situations, i.e. earthquakes, draughts.
6. The ideas, thoughts may be exchanged.
7. An opportunity of enjoying the scarce resources may be possible.
8. The benefits of division of labour are obtained by all.
To promote the international trade….
1. Uneven distribution of national resources
• Climate : The climate on earth is not similar at all locations
• Mineral resources : The earth is a store-house of various minerals, but their distribution over the earth is very uneven.
• Relief Conditions: A large portion of earth’s surface is covered by the mountains, plateaus and plains.

2. Distribution of population
3. Uneven Economic Development
4. Foreign Investment
5. Facilities of Transport and Communication
6. Government Policy
7. Rate of Octroi
8. Surplus Production
Classical Theory of International Trade
• To better understand how modern global trade has evolved, it’s important to
understand how countries traded with one another historically.
• Over time, economists have developed theories to explain the mechanisms of global
trade. The main historical theories are called classical and are from the perspective
of a country, or country-based.
• By the mid-twentieth century, the theories began to shift to explain trade from a
firm, rather than a country, perspective. These theories are referred to
as modern and are firm-based or company-based.
• Adam Smith and David Ricardo gave the classical theories of international trade.
The classical theories are divided into three theories :-
• i) Theory of Mercantilism.
• ii) Theory of Absolute Advantage.
• iii) Theory of Comparative Cost Advantage.
• iv) Heckscher-Ohlin Theory (Factor Proportions Theory)
The theory of mercantilism
• The theory of mercantilism holds that countries should encourage export
and discourage import.
• It states that a country’s wealth depends on the balance of export minus
import.
• According to this theory, government should play an important role in the
economy for encouraging export and discouraging import by using
subsidies and taxes, respectively.
Theory of Absolute Advantage
Adam Smith gave the theory of absolute advantage stated that a
country should specialize in those products, which it can produce
efficiently.
This theory assumes that there is only one factor of production that is
labor.
In his words “If a foreign country can supply us with a commodity
cheaper than we ourselves can make it, better buy it of them with
some part of the produce of our own industry, employed in a way in
which we have some advantage”.
Absolute Advantage:

• Adam Smith argued that trade should be based on absolute

advantage. This term describes the position when one country is
absolutely more efficient at producing good A, whilst another country
is absolutely ‘better’ at producing good B. Both countries would
benefit if they specialised in producing the goods at which they have
the advantage and then exchanged their products.
• Thus, Britain has an absolute advantage compared to Jamaica in the
production of cars whilst Jamaica has an absolute advantage in the
production of tropical fruits. It will benefit both countries if they
specialise and trade. Absolute advantage is a specific example of the
advantages of specialisation and division of labour.
Theory of Comparative Cost Advantage
David Ricardo in his theory of comparative advantage states that trade can
be beneficial for two countries if one country has absolute advantage in
all the products and the other country has no absolute advantage in any
of the products.
This theory assumes that labor is the only factor of production in two
countries, zero transport cost, and no trade barriers within the countries.
A nation, like a person, gains from the trade by exporting the goods or
services in which it has its greatest comparative advantage in productivity
and importing those in which it has the least comparative advantage. ”
Comparative Advantage:

• Ricardo, improving upon Adam Smith’s exposition, developed the theory of

international trade based on what is known as the Principle of Comparative
Advantage (Cost). International trade involves the extension of the principle
of specialisation or division labour to the sphere of international exchange.
• a country specialises in the production of the commodity in which it has the
best natural advantages. A country may produce many things at a time, but it
may have comparative advantages in the production of some commodities
(say, tea or jute as in India) over others and it will specialise in those goods.
• Similarly, another country would produce those goods (say, machineries and
engineering goods as in Germany or Japan) in which it has comparative
advantage.
• If these two countries produce goods according to their respective areas of
comparative advantage, each country would be able to produce the goods at
the lowest cost; and both these countries will gain from trading with each
other. This is the substance of the principle of comparative advantage (cost).
The Ricardian Theory of Comparative Advantage
• The principle of comparative cost states that (a) international trade
takes place between two countries when the ratios of comparative
cost of producing goods differ, and (b) each country would specialise
in producing that commodity in which it has a comparative
advantage.
Ricardo developed his theory by comparing two countries, England and
Portugal, and two commodities, wine and cloth. Table 1 shows that
Portugal was more efficient in the production of both goods, but
Ricardo argued that both countries could benefit if they specialised
where their advantage was comparatively high and then traded.
Portugal’s labour costs were lower than England’s in both cloth and
wine, but the comparative advantage was greater in wine. The cost
ratios were 9:10 for cloth and 8:12 for wine. Thus, it cost England
roughly 1.1 times as much labour to produce cloth as it did Portugal, but
1.5 times as much to produce wine.
• Ricardo showed that both countries would benefit if England
specialised in cloth and Portugal in wine and; if after specialisation, a
unit of wine is exchanged for a unit of cloth.
• England would gain 20 hours since it costs her 100 hours to produce
cloth but 120 to produce wine.
• Portugal would also benefit because she would trade a unit of wine
which took 80 hours to produce and receive a unit of cloth which
would have taken her 90 hours to produce. Hence, Portugal gains 10
hours.
• Portugal has an absolute advantage in the production of both the
commodities since the input requirements for both the commodities
are less than those of England. But Portugal has a comparative cost
advantage in wine.
Ricardo has put the following assumptions for his theory

1. Labour is the only productive factor.

2. Costs of production are measured in terms of the labour units involved.
3. Labour is perfectly mobile within a country but immobile internationally.
4. Labour is homogeneous.
5. There is unrestricted or free trade.
6. There is constant returns to scale.
7. There is full employment equilibrium.
8. There is perfect competition.
Heckscher-Ohlin Theory (Factor Proportions
Theory)
• The theory was developed by the Swedish economist Bertil Ohlin (1899–1979)
on the basis of work by his teacher the Swedish economist Eli Filip Heckscher
(1879–1952).
• according to which countries in which capital is relatively plentiful
and labor relatively scarce will tend to export capital-intensive products and
import labour-intensive products, while countries in which labour is relatively
plentiful and capital relatively scarce will tend to export labour-intensive
products and import capital-intensive products.
• A small country like Luxembourg has much less capital in total than India, but
Luxembourg has more capital per worker. Accordingly, the Heckscher-Ohlin
theory predicts that Luxembourg will export capital-intensive products to India
and import labour-intensive products in return.
World Trade Organization (WTO)
• On 15th April 1994, the member countries decided to establish the
WTO and it started its working from 1st Jan. 1995. Therefore, the WTO
started its working in face of GATT(General. Agreement on Tariffs and
Trade) and Dunkel Proposal.
Objectives of WTO

1. To promote the income of a country, people.

2. To encourage the employment opportunities.
3. To expand the trade
4. To suggest remedies for environmental balance.
5. To enhance rapidly the trade in the developed countries.
Management of WTO
• The implementation of 28 points of agreement suggested in Dunkel Proposal
is to be carried out by WTO.
• 1. The WTO should work and take decisions in such a way that any member
should not have any objection.
• 2. When the decision is not unanimously acceptable, the organization may
decide it with the principal ‘one nation-one opinion’.
• 3. The disputes among the member-nations are to be settled with a gentle
step.
• 4. If the member-nation transgresses the agreement, she will have to pay the
loss of the affected country.
• 5. The WTO will solve the problems through negotiations.
The Benefits of WTO

• The WTO, right from it’s establishment, has been working

satisfactorily. It has benefited number of nations.
• The international trade of such nations has been increased and the
overall international trade is increased tremendously
Organisation of Petroleum Exporting Countries (OPEC)
• According to Dr. John Alphanso, the countries, which produce the
commodities having world-wide importance in trade will have to unite
to decide certain policy regarding the export of that commodity.
• The first meeting of the countries, producing mineral oil, took place in
1959 to think over the idea put by Dr. Alphanso.
• Organization established in 14th Nov.1960, which is popularly known
as Organization of Petroleum Exporting Countries (OPEC).
• An agreement regarding the same was signed at the Baghdad, a
capital of Iraq
• In the beginning, Few countries accepted the membership including
Iraq, Iran and Saudi Arabia and Venezuela. In the later period, Libiya,
Nigeria, Quatar, Abudhabi, Indonesia Equador joined the organization.
Objectives of OPEC

1. To keep the equal oil-prices in the international market.

2. To keep the oil prices stable.
3. To creat co-operation and friendship among the member countries.
4. To establish new industries in the oil exporting countries with the
help of other countries.
European Economic Community (EEC)
• The countries of Europe, together established this EEC trade
organization on 25th March 1957 at Rome in Italy. The trade
agreement came into practice by 1st Jan.1958.
• The nine countries of Europe- Belgium, Netherlands, Denmark,
France, Germany, Ireland, Italy, Luxemburg and Britten are the
permanent members of EEC.
Objectives of the EEC
1. To end the difference in the policies related to trade among the
members.
2. To implement equal policy of trade.
3. To create collective markets for the commodities.
4. To create good communication among the member-nations
regarding the economic development.
5. To raise the standard of living of the people among member
countries
Functions of the Organizations
1. All the member countries have similar octroi system.
2. There is free exchange of services, goods, capital and labor among
member countries.
3. The rules regarding the import and export among member countries
have been framed.
4. The policy of collective agricultural productions and their exchange
among member countries have been made.
5. The rules regarding the agricultural productions and their exchange
among member countries have been made.
6. The financial assistance to agricultural sector was being supplied
from the collective money of member countries.
EU
• The European Union is a unified trade and monetary body of 27
member countries.
• Its 27 member countries are Austria, Belgium, Bulgaria, Croatia,
Cyprus, Czech Republic, Denmark, Estonia, Finland, France, Germany,
Greece, Hungary, Ireland, Italy, Latvia, Lithuania, Luxembourg, Malta,
Netherlands, Poland, Portugal, Romania, Slovakia, Slovenia, Spain,
and Sweden.
• It eliminates all border controls between members. The open border
allows the free flow of goods and people.
• Any product manufactured in one EU country can be sold to any other
member without tariffs or duties.
Purpose
• The EU's purpose is to be more competitive in the global
marketplace.
• At the same time, it must balance the needs of its independent
fiscal and political members.
ASEAN
• The Association of Southeast Asian Nations was established in
August 1967 with the purpose of accelerating the economic
growth, social progress, and cultural development in the region,
and promoting regional peace and stability.
• ASEAN is a regional organization that brings together disparate
neighbors to address economic, security, and political issues, but
the group’s impact remains limited.
• It is an intergovernmental organization of ten Southeast Asian
countries: Brunei, Cambodia, Indonesia, Laos, Malaysia, Myanmar,
the Philippines, Singapore, Thailand, and Vietnam
• The group has played a central role in Asian economic integration,
spearheading negotiations among Asia-Pacific nations to form one
of the world’s largest free trade blocs and signing six free trade
agreements with other regional economies
Purposes of the Association
1. To accelerate the economic growth, social progress and cultural
development in the region through joint endeavors in the spirit of
equality and partnership in order to strengthen the foundation for a
prosperous and peaceful community of Southeast Asian nations,
and
2. To promote regional peace and stability through abiding respect for
justice and the rule of law in the relationship among countries in the
region and adherence to the principles of the United Nations Charter. In
1995, the ASEAN Heads of State and Government re-affirmed that
“Cooperative peace and shared prosperity shall be the fundamental goals
of ASEAN.”
EFTA
• The European Free Trade Association (EFTA) is the intergovernmental
organisation of Iceland, Liechtenstein, Norway and Switzerland.
• It was set up in 1960 by its then seven Member States for the
promotion of free trade and economic integration between its
members.
Main tasks
The main tasks of the Association are threefold
• Maintaining and developing the EFTA Convention, which regulates
economic relations between the four EFTA States;
• Managing the Agreement on the European Economic Area (EEA
Agreement), which brings together the Member States of the
European Union and three of the EFTA States – Iceland, Liechtenstein
and Norway – in a single market, also referred to as the “Internal
Market”.
• Developing EFTA’s worldwide network of free trade agreements.
Mission

• The European Free Trade Association (EFTA) is an intergovernmental

organisation set up for the promotion of free trade and economic
integration to the benefit of its four Member States – Iceland,
Liechtenstein, Norway and Switzerland – and the benefit of their
trading partners around the globe.
NAFTA
• The North American Free Trade Agreement (NAFTA) was a treaty
between Canada, Mexico, and the United States that eliminated most
tariffs between the counties.
• It was replaced by the United States-Mexico-Canada Agreement
(USMCA) on July 1, 2020. Learn more about NAFTA and its impact on
trade.
• NAFTA was the world’s largest free trade agreement when it was
established on Jan. 1, 1994.
• NAFTA was the first time two developed nations signed a trade
agreement with an emerging market country.
NAFTA accomplished six things for the participating countries.

• First, NAFTA granted most-favored-nation status to all co-signers. That

means each country treated the other two fairly and couldn't give
better treatment to domestic investors than foreign ones. They also
couldn't offer a better deal to investors from non-NAFTA countries
and they had to offer federal contracts to businesses in all three
NAFTA countries.3
• Second, NAFTA eliminated many tariffs on imports and exports
between the three countries. Tariffs are taxes used to make foreign
goods more expensive. NAFTA created specific rules to regulate trade
in farm products, automobiles, and clothing.
• Third, exporters were required to get Certificates of Origin to waive
tariffs. That meant the export had to originate in the United States,
Canada, or Mexico. A product made in Peru but shipped from Mexico
would still pay a duty when it entered the United States or Canada.
NAFTA accomplished six things for the participating
countries….
• Fourth, NAFTA established procedures to resolve trade disputes. Parties
would start with a formal discussion, followed by a discussion at a Free Trade
Commission meeting if needed. If the disagreement wasn't resolved, a panel
reviewed the dispute. The process helped all parties avoid costly lawsuits in
local courts and helped them interpret NAFTA’s complex rules and
procedures. These trade dispute protections applied to investors as well.
• Fifth, all NAFTA countries were required to respect patents, trademarks, and
copyrights. At the same time, the agreement ensured that these intellectual
property rights didn't interfere with trade.
• Sixth, the agreement allowed business travelers easy access throughout all
three countries.
SAARC
• The South Asian Association for Regional Cooperation (SAARC) was
established with the signing of the SAARC Charter in Dhaka on 8
December 1985.
• SAARC comprises of eight Member States: Afghanistan, Bangladesh,
Bhutan, India, Maldives, Nepal, Pakistan and Sri Lanka.
• The Secretariat of the Association was set up in Kathmandu on 17
January 1987
The Objectives of the SAARC
• To promote the welfare of the people of South Asia and to improve their quality of
life.
• To accelerate economic growth, social progress and cultural development in the
region and to provide all individuals the opportunity to live in dignity and to realize
their full potentials.
• To promote and strengthen collective self-reliance among the countries of South Asia.
• To contribute to mutual trust, understanding and appreciation of one another’s
problems..
• To promote active collaboration and mutual assistance in the economic, social,
cultural, technical and scientific fields.
• To strengthen cooperation with other developing countries.
• To strengthen cooperation among themselves in international forums on matters of
common interests; and
• To cooperate with international and regional organizations with similar aims and
purposes.
New Industrial Policies in India
• The government adopted rules and regulations for the various industries.
• Industrial policy introduction proved to be the turning point in Indian
Industrial history.
• Industrial policy is a document that sets the tone in implementing, promoting
the regulatory roles of the government.
• It was an effort to expand the industrialization and uplift the economy to its
deserved heights.
• It signified the involvement of the Indian government in the development of
the industrial sector.
• The industrial growth of a country is guided and regulated through its
industrial policies.
New Industrial Policies in India…..
• Government action to influence the ownership and structure of the
industry and its performance. It takes the form of paying subsidies or
providing finance in other ways, or of regulation.
• It includes procedures, principles, policies, rules and regulations,
incentives and punishments, the tariff policy, the labour policy,
government’s attitude towards foreign capital, etc.
• The New Economic Policy (NEP) of India was launched on July 24,
1991 by then union Finance Minister Dr. Manmohan Singh and Prime
Minister P. V. Narasimha Rao.
Objectives

The main objectives of the Industrial Policy of the Government in India

are:
to maintain a sustained growth in productivity;
to enhance gainful employment;
to achieve optimal utilisation of human resources;
to attain international competitiveness; and
to transform India into a major partner and player in the global arena.
New Industrial Policy During Economic Reforms of 1991

• The long-awaited liberalised industrial policy was announced by the

Government of India in 1991 in the midst of severe economic
instability in the country.
• The objective of the policy was to raise efficiency and accelerate
economic growth.
Features of New Industrial Policy
De-reservation of Public sector:
• Sectors that were earlier exclusively reserved for public sector were
reduced. However, pre-eminent place of public sector in 5 core areas
like arms and ammunition, atomic energy, mineral oils, rail transport
and mining was continued.
• Presently, only two sectors- Atomic Energy and Railway operations-
are reserved exclusively for the public sector.
Features of New Industrial Policy
De-licensing:
• Abolition of Industrial Licensing for all projects except for a short list
of industries.
• There are only 4 industries at present related to security, strategic and
environmental concerns, where an industrial license is currently
required-
Electronic aerospace and defence equipment
Specified hazardous chemicals
Industrial explosives
Cigars and cigarettes of tobacco and manufactured tobacco substitutes
Features of New Industrial Policy
Disinvestment of Public Sector:
Government stakes in Public Sector Enterprises were reduced to enhance their
efficiency and competitiveness.
Liberalisation of Foreign Investment:
This was the first Industrial policy in which foreign companies were allowed to
have majority stake in India. In 47 high priority industries, upto 51% FDI was
allowed. For export trading houses, FDI up to 74% was allowed.
• Today, there are numerous sectors in the economy where government allows 100% FDI.
• The list of high priority industries include industries based on herbal, medicinal herb, small forest produce, automobile, auto
components, pharmaceuticals, white goods, electronics and electrical products, industries based on robotics technique,
artificial intelligence technique, information technology, products of bio technology, nano technology, textile (spinning,
weaving, power-loom and fabrics or any other process), ancillary equipments and spare products of railways, space, defence
organizations, telecommunication and aeronautical companies.
Features of New Industrial Policy
Foreign Technology Agreement:
Automatic approvals for technology related agreements.

MRTP Act :
MRTP (MONOPOLIES AND RESTRICTIVE TRADE PRACTICES) Act was amended to remove the
threshold limits of assets in respect of MRTP companies and dominant
undertakings. MRTP Act was replaced by the Competition Act 2002.