Extending Leontief’s view, some of the economists emphasize on the point that it is not only the abundance (scarcity) of a particular factor, but also the quality of that factor of production that influences the pattern of international trade. The quality is so important in their view that they analyse the trade theory in a three-factor framework instead of two-factor framework taken into account by Heckscher and Ohlin. The third factor manifests in the form of: Human capital: It is the result of better education and training.Human capital should be treated as a factor input like physical labor and capital. A country with human capital maintains an edge over other countries with regards to the export of commodities produces with the help of improved human capital. Skill Intensity: The skill intensity hypothesis is similar to human capital hypothesis as both of them explain the capital embodied in human beings. It Continue reading
International Economics
Modes of Transferring Capital or Funds from Savers to Borrowers
In economics, a financial market refers to a media that allows people to buy, sell, create and exchange financial securities such as share and bonds, commodities such as basic agricultural goods and precious metals, and other fungible items of value at low transaction costs and at prices that reflect the efficient-market. Both general markets where many commodities are traded and specialized markets where only one commodity is traded exist in financial market. Markets work by placing many interested buyers and sellers in one media, thus making it easier for them to find each other. The financial markets can be divided into different types such as capital markets, commodity markets, money markets, insurance market and foreign exchange market. A saver refers to the one who deposit their money in bank, invest in company share and pays premium to an insurance company with objective to earn interest, dividend and profit. They aim Continue reading
Free Trade Zones – Definition and Meaning
In simple words, free trade means free international trade. The classical economists like Adam Smith, Ricardo and others strongly favored free trade and this doctrine held the field for nearly one hundred years. How ever later, the countries all over the world began to adhere to the policy of imposing restrictions in one form or other. History and Development of Free Trade Zones During the last 20 years, the labor charges in developed countries have increased substantially. According to a recent estimate, the labor cost is nearly 1 USD per hour for semi-skilled workers in most European Countries, U.S and Japan. This high labor cost was due to the acute shortage of both skilled and unskilled labor in most of these countries. Countries like Germany, France, Switzerland, Sweden, Austria, Belgium and England even imported laborers from other countries. Therefore, the cost of production involving a considerable labor content has become Continue reading
International Trade Theory of Country Size and Technology Gap
Trade Theory of Country Size Country size has some definite relation to international trade as to what is traded, how much is traded and so on. The classical trade theories do not go into country-by-country differences in size to deal with the lines of specialization. When a small and big country are involved, the small country may be pushed into specialization, but not the big one for all its need for the other product can’t be produced by the other small country, nor that small country take all export surplus of the big nation resulting from specialization. Thus a nexus exists between global trade and country size. Vastness of Country size and Variety of Resources go together: Size of a country is measured by the geographical space here. Big countries have vast space and hence more and diverse resources. With that they could be self reliant. Considering their size, their Continue reading
Role of Government in Economic Development
Any country’s the prosperity and obstacles of economic growth results from activities of government. That means, government plays important role in economic activities. In free market economies government plays important activities. It has to perform role to prevent market failure. As we know that market does not yield economically efficient outcome every time as the result market fails to operate. In free market economy government has designed activities to stimulate and assist private enterprise and to regulate or control business practices so that their operations are consistent with the public interest. There are various forms of government regulation especially to regulate the activities of private firms. Industrial products are subject to Operating Regulations, governing plant and pollutant emission, product packaging and labeling, worker safety and health etc. Banks and Financial Institutions are subject to Financial Regulations, both the government as well as the control made by the Central Bank for Continue reading
Survival of the Fittest in Business
“The law is the survival of the fittest…. The law is not the survival of the ‘better’ or the ‘stronger,’ if we give to those words any thing like their ordinary meanings. It is the survival of those which are constitutionally fittest to thrive under the conditions in which they are placed; and very often that which, humanly speaking, is inferiority, causes the survival.” • Herbert Spencer At any given time, there may be firms of varying sizes and efficiency in an industry, possibly some making profits and others incurring losses. As long as industry is open for anyone to enter freely, an excess of price over the attainable average total costs will encourage the entry of new firms. As such new firms move in, they compete with existing firms and the most inefficient firms are eliminated. In the long-run, therefore, only those firms will remain in the industry, which Continue reading