Course Title: Management of Foreign Trade

Question O I: Define the Foreign Trade, ty�f forei&!!..!_rade. importance of foreign tradi;

The Meaning and Definition of Foreign Trade:

Foreign trade is exchange of capital, goods, and services across international borders or
territories. ln most countries, it represents a significant share of gross domestic product
(GDP).

What are the types of foreign trade?

There are three types of international trade:
Export Trade,
Import Trade and
Entrepot Trade.

What is the importance of foreign trade?

The main reasons which make foreign trade important for economy of a country or
the significance of foreign trade are: It helps in expansion of business and in dissolving
monopolistic entities, increasing competition. It also encourages product innovation and
brings wider availability goods and services to choose from.

Question 02: 10 Salient Features of Foreign Trade

Foreign trade plays an important role in the economic development or country. It is
said, "Foreign trade is not simply a device for achieving productive efficiency but is an
engine or economic growth."
Many reasons certify this statement.
(i) Nation can optimally use its resources.
(ii) Technical know-how can be imported.
(iii) Surplus production can be exported.
(iv) Machinery and raw materials can be imported as and when needed.
(v) Food grains and necessary help can be imported during natural calamities like
earthquake,
& flood etc.
Keeping in mind all these reasons Planning Commission or India has emphasized the
development or foreign trade in plans.
Salient Features of Foreign Trade:
The following are the features of foreign trade:
(i) Change in the composition of exports:
After independence many changes took place in export trade. India exported tea, jute, cloth.
iron, spices and leather before independence. Now chemicals, readymade garments, gems,
jewellery, electronic goods, processed roods, machines. Computer software etc. are exported
along with tea, jute and cotton textiles.
(ii) Change in the composition of imports:
lndia imported consumer goods, medicines, textiles, motor vehicles and electrical goods
before independence. After independence, imports are fertilizers, petroleum, steel, machines,
industrial raw materials, edible oils and unfinished diamonds.
(iii) Direction of foreign trade:
Direction of foreign trade means those countries with which India has trade ties. Before
independence, India has trade relations with England and Commonwealth Nations Now lndia
has trade relations with U.S.A, Russia, Japan, European Union and Organization of
Petroleum Exporting Countries (OPEC).
1
(iv) Balance of trade:
Simply speaking balance or trade means the difference between value or exports and imports.
Balance or payments is favourable if exports exceed imports and un-favourable if
imports exceeds export. India's balance of payment was favourable before Independence.
It was favourable to Rs. 42 crore, but after independence it becomes un-favourable. It
was Rs.
65741 crore adverse in 2003-04.
(v) Dependent trade:
Before independence, Indian foreign trade was dependent on foreign shipping, insurance and
banking companies. After independence, cargo ships are being built in India. Banks and
insurance companies have started taking interest in foreign trade.
(vi) Trade through sea routes:
India's foreign trade is through sea routes. India has very little trade relations
with
neighbouring countries like Nepal, Afghanistan, Pakistan, Bhutan and Sri Lanka
etc. (vii) Dependence on a few Ports:
Indian foreign trade is through Chennai, Kolkata and Mumbai ports. These ports are always
over-crowded. Arter independence ports like Kand la, Cochin and Vishakhapatnam have
been developed.
(viii) Less percentage of world trade:
India's share in world trade has been diminishing. It was 1.8% of world's total imports
and
2% of world's total exports in 1950-51. In 2003-04 India 's share in total world imports
was
I% and in total world exports was
0.8%.
(ix) Increased Share in Gross National Income:
Foreign trade has significant contribution in lndian national income. In 1950-51, India's
foreign trade contribution into national income was 12% and rose is 29% in 2003-04.
(x) Increase in value and volume of trade:
The value and volume of imports and exports increased many fold. In 1950-51 imports
were
Rs. 608 crores and exports were Rs. 606 crores. So total value was Rs. 1214 crores. In
2003-
04, it increased to Rs. 6, 52,475 crore. Value of exports 2, 93,367 crore and of imports 3,
59, I 08 crore.

Question 03: What L� International Trade Theor}'.?

There are two main categories of international trade-----classical, country-based and modern,
firm-based. Porter's theory states that a nation's competitiveness in an industry depends on
the capacity of the industry to innovate and upgrade.
International trade theories are simply different theories to explain international trade.
Trade is the concept or exchanging goods and services between two people or entities.
International trade is then the concept or this exchange between people or entities in
two different countries.
People or entities trade because they believe that they benefit from the exchange. They
may need or want the goods or services. While at the surface, this many sound very simple,
there is a great deal of theory, policy, and business strategy that constitutes international trade.
In this section, you'll learn about the different trade theories that have evolved over the past
century and which are most relevant today. Additionally, you'll explore the factors that
impact international trade and how businesses and governments use these factors to their
respective benefits to promote their interests.

What Are the Different International Trade Theories?

"Around 5,200 years ago, Umk, in southern Mesopotamia, was probably the first city the
world had ever seen, housing more than 50,000 people within its six miles of wall. Uruk,
its
agriculture made prosperous by sophisticated irrigation canals, was home to the first class of
middlemen, trade intermediaries ... A cooperative trade network ... set the pattern that would
endure for the next 6,000 years."Matt Ridley, "Humans: Why They Triumphed," Wall Street
Journot, May 22, 2010, accessed December 20,
20 I 0, http://online.wsj.com/article/SB IOOO 142405274870369 I 804575254533386933 I 38.htm
I.
ln more recent centuries, economists have focused on trying to understand and explain
these trade patterns. Chapter I "Introduction", Section 1.4 "The Globalization Debate"
discussed how Thomas Friedman's flat-world approach segments history into
three stages: Globalization 1.0 from 1492 to 1800, 2.0 from 1800 to 2000, and 3.0
from 2000 to the present. In Globalization 1.0, nations dominated global expansion. ln
Globalization 2.0, multinational companies ascended and pushed global development. Today,
technology drives Globalization 3.0.
To better understand how modem 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 lirm, rather
than a country, perspective. These theories are referred to as modern and are firm-
based or company-based. Both of these categories, classical and modern, consist
of several international theories.

Classical Country-Based Theories Modern Firm-Based Theories

Mercantil ism Country Similarity

Absolute Advantage Product Life Cycle
Comparative Advantage Global strategic Rivalry
Heckscher-Ohlin Porter's National Competitive
Advantage

Classical or Country-Based Trade Theories

Mercantilism
Developed in the sixteenth century, mercantilism was one of the earliest efforts to develop an
economic theory. This theory stated that a country's wealth was detennined by the amount of
its gold and silver holdings. In it's simplest sense, mercantilists believed that a country should
increase its holdings of gold and silver by promoting exports and discouraging imports. ln
other words, if people in other countries buy more from you (exports) than they sell to you
(imports), then they have to pay you the difference in gold and silver. The objective of each
country was to have a trade surplus, or a situation where the value of exports are greater than
the value of imports, and to avoid a trade delicit, or a situation where the value of imports is
greater than the value of exports.
A closer look at world history from the 1500s to the late 1800s helps explain why
mercantilism nourished. The 1500s marked the rise of new nation-states, whose rulers
wanted to strengthen their nations by building larger armies and national institutions. By
increasing exports and trade, these rulers were able to amass more gold and wealth for
their
countries. One way that many or these new nations promoted exports was to impose
restrictions on imports. This strategy is called protectionism and is still used today.
Nations expanded their wealth by using their colonies around the world in an effort to control
more trade and amass more riches. The British colonial empire was one or the more
successful examples; it sought to increase its wealth by using raw materials from places
ranging from what are now the Americas and India. France, the Netherlands, Portugal, and
Spain were also successful in building large coloniaJ empires that generated extensive wealth
for their governing nations.
Although mercantilism is one or the oldest trade theories, it remains part or modern thinking.
Countries such as Japan, China, Singapore, Taiwan, and even Germany still favor exports and
discourage imports through a form or neo-mercantilism in which the countries promote a
combination or protectionist policies and restrictions and domestic-industry subsidies. Nearly
every country, at one point or another, has implemented some Iorm or protectionist policy to
guard key industries in its economy. While export-oriented companies usually support
protectionist policies that favor their industries or firms, other companies and consumers are
hurt by protectionism. Taxpayers pay for government subsidies or select exports in the form
or higher taxes. Import restrictions lead to higher prices for consumers, who pay more for
foreign-made goods or services. Free-trade advocates highlight how free trade benefits all
members of the global community, while mercantilism's protectionist policies only benefit
select industries, at the expense of both consumers and other companies, within and outside
of the industry.

Absolute Advantage
In 1776, Adam Smith questioned the leading mercantile theory of the time in The Wealth
of Natio11s.Adam Smith, A11 Inquiry into the Nature and Causes of the Wealth
of Nations (London: W. Strahan and T. Cadell, 1776). Recent versions have been edited
by scholars and economists. Smith offered a new trade theory called absolute advantage,
which focused on the ability of a country to produce a good more efficiently than another
nation. Smith reasoned that trade between countries shouldn't be regulated or
restricted by government policy or intervention. He stated that trade should now naturally
according to market forces. ln a hypothetical two-country world, if Country A could
produce a good cheaper or faster (or both) than Country B, then Country A had the
advantage and could focus on specializing on producing that good. Similarly, if Country B
was better at producing another good, it could focus on specialization as well. By
speciaJization, countries would generate efficiencies, because their labor force would become
more skilled by doing the same tasks. Production would also become more efficient, because
there would be an incentive to create faster and better production methods to increase the
specialization.
Smith's theory reasoned that with increased efficiencies, people in both countries would
benefit and trade should be encouraged. His theory stated that a nation's wealth shouldn't be
judged by how much gold and silver it had but rather by the living standards of its people.

Comparative Advantage
The challenge to the absolute advantage theory was that some countries may be better at
producing both goods and, therefore, have an advantage in ma11y areas. In contrast, another
country may not have any useful absolute advantages. To answer this challenge, David
Ricardo, an English economist, introduced the theory of comparative advantage in 1817.
Ricardo reasoned that even if Country A had the absolute advantage in the production
of both products, specialization and trade could still occur between two countries.
Comparative advantage occurs when a country cannot produce a product more efficiently
than the other country; however, it can produce that product better and more efficiently
than
it does other goods. The difference between these two theories is subtle. Comparative
advantage focuses on the relative productivity differences, whereas absolute advantage looks
at the absolute productivity.
Let's look at a simplified hypothetical example to illustrate the subtle difference between
these principles. Miranda is a WaU Street lawyer who charges $500 per hour for her legal
services. It turns out that Miranda can also type raster than the administrative assistants in her
office, who are paid $40 per hour. Even though Miranda clearly has the absolute advantage in
both skill sets, should she do both jobs? No. For every hour Miranda decides to type instead
or do legal work, she would be giving up $460 in income. Her productivity and income wilJ
be highest if she specializes in the higher-paid legal services and hires the most qualified
administrative assistant, who can type Fast, although a little slower than Miranda. By having
both Miranda and her assistant concentrate on their respective tasks, their overall productivity
as a team is higher. This is comparative advantage. A person or a country will specialize in
doing what they do relatively better. ln reality, the world economy is more complex and
consists or more than two countries and products. Barriers to trade may exist, and goods must
be transported, stored, and distributed. However, this simplistic example demonstrates the
basis of the comparative advantage theory.

Heckscher-Ohlin Theory (Factor Proportions Theory)

The theories of Smith and Ricardo didn't help countries determine which products would
give a country an advantage. Both theories assumed that free and open markets would lead
countries and producers to determine which goods they could produce more efficiently. In the
early 1900s. two Swedish economists, Eli Heckscher and Berti I Ohl in, focused their attention
on how a country could gain comparative advantage by producing products that utilized
factors that were in abundance in the country. Their theory is based on a country's production
Factors-land, labor, and capital, which provide the funds for investment in plants and
equipment. They determined that the cost or any Factor or resource was a function or supply
and demand. Factors that were in great supply relative to demand would be cheaper; Factors
in great demand relative to supply would be more expensive. Their theory. also called
the Factor proportions theory, stated that countries would produce and export goods that
required resources or Factors that were in great supply and, therefore, cheaper production
Factors. In contrast, countries would import goods that required resources that were in short
supply, but higher demand.
For example, China and India are home to cheap, large pools of labor. Hence these
countries
have become the optimal locations for labor-intensive industries like textiles and garments.

Leontief Paradox
In the early 1950s, Russian-born American economist Wassily W. Leontief studied the US
economy closely and noted that the United States was abundant in capital and, therefore,
should export more capital-intensive goods. However, his research using actual data showed
the opposite: the United States was importing more capital-intensive goods. According to the
Factor proportions theory, the United States should have been importing labor-intensive
goods, but instead it was actually exporting them. His analysis became known as the Leontief
Paradox because it was the reverse or what was expected by the Factor proportions theory. In
subsequent years, economists have noted historically at that point in time, labor in the United
States was both available in steady supply and more productive than in many other countries;
hence it made sense to export labor-intensive goods. Over the decades, many economists
have used theories and data to explain and minimize the impact of the paradox. However,
what remains clear is that international trade is complex and is impacted by numerous and
often-changing factors. Trade cannot be explained neatly by one single theory, and more
importantly, our understanding or international trade theories continues to evolve.

Modern or Firm-Based Trade Theories

In contrast to classical, country-based trade theories, the category of modern, firm-based
theories emerged after World War II and was developed in large part by business school
prorcssors. not economists. The Firm-based theories evolved with the growth or the
multinational company (MNC). The country-based theories couldn't adequately address the
expansion of either MNCs or intraindustry trade, which refers to trade between two
countries of goods produced in the same industry. For example, Japan exports Toyota
vehicles to Gennany and imports Mercedes-Benz automobiles from Germany.
Unlike the country-based theories, firm-based theories incorporate other product and service
factors, including brand and customer loyalty, technology, and quality, into the understanding
of trade nows.

Country Similarity Theory

Swedish economist Steffan Linder developed the country similarity theory in 1961, as he
tried to explain the concept or intraindustry trade. Linder's theory proposed that consumers in
countries that are in the same or similar stage or development would have similar
preferences. ln this Firm-based theory, Linder suggested that companies first produce for
domestic consumption. When they explore exporting, the companies often find that markets
that look similar to their domestic one, in terms or customer preferences, offer the most
potential for success. Linder's country similarity theory then states that most trade in
manufactured goods will be between countries with similar per capita incomes, and
intraindustry trade will be common. This theory is often most useful in understanding trade in
goods where brand names and product reputations are important factors in the buyers'
decision-making and purchasing processes.

Product Life Cycle Theory

Raymond Vernon, a Harvard Business School professor, developed the product life cycle
theory in the 1960s. The theory, originating in the field of marketing, stated that a product
lire cycle has three distinct stages: (I) new product, (2) maturing product, and (3)
standardized product. The theory assumed that production of the new product will occur
completely in the home country or its innovation. In the 1960s this was a useful
theory to explain the manufacturing success or the United States. US manufacturing was
the globally dominant producer in many industries after World War II.
It has also been used to describe how the personal computer (PC) went through its product
cycle. The PC was a new product in the 1970s and developed into a mature product during
the 1980s and 1990s. Today, the PC is in the standardized product stage, and the majority or
manufacturing and production process is done in low-cost countries in Asia and Mexico.
The product lire cycle theory has been less able to explain current trade patterns where
innovation and manufacturing occur around the world. For example, global companies even
conduct research and development in developing markets where highly skilled labor and
facilities are usuaJly cheaper. Even though research and development is typically associated
with the First or new product stage and therefore completed in the home country, these
developing or emerging-market countries, such as lndia and China, offer both highly skilled
labor and new research facilities at a substantial cost advantage for global firms.
Global Strategic Rivalry Theory
Global strategic rivalry theory emerged in the 1980s and was based on the work of
economists Paul Krugman and Kelvin Lancaster. The.ir theory focused on MNCs and their
efforts to gain a competitive advantage against other global lirms in their industry. Finns wilJ
encounter global competition in their industries and in order to prosper, they must develop
competitive advantages. The critical ways that firms can obtain a sustainable competitive
advantage are caJled the barriers to entry for that industry. The barriers to entry refer to the
obstacles a new lirm may face when trying to enter into an industry or new market. The
barriers to entry that corporations may seek to optimize include:
• research and development,
• the ownership or intellectual property rights,
• economies or scale,
• unique business processes or methods as well as extensive experience in the industry,
and
• the control of resources or favorable access to raw materials .
•
Porter's National Competitive Advantage Theory
In the continuing evolution or international trade theories, Michael Porter or
Harvard
Business School developed a new model to explain national competitive advantage
in
1990. Porter's theory stated that a nation's competitiveness in an industry depends on the
capacity of the industry to innovate and upgrade. His theory focused on explaining why some
nations are more competitive in certain industries. To explain his theory, Porter identified
four determinants that he linked together. The four determinants are ( I) local market
resources and capabilities, (2) local market demand conditions, (3) local suppliers and
complementary industries, and (4) local Firm characteristics.

I. Local market resources and capabilities (factor conditions). Porter recognized the
value of the factor propmtions theory, which considers a nation's resources (e.g.,
natural resources and available labor) as key factors in determining what products a
country will import or export. Porter added to these basic factors a new list or
advanced factors, which he defined as skilled labor, investments in education,
 technology, and infrastructure. He perceived these advanced factors as providing a
country with a sustainable competitive advantage.
2. Local market demand conditions. Porter believed that a sophisticated home market
is critical to ensuring ongoing innovation, thereby creating a sustainable competitive
advantage. Companies whose domestic markets are sophisticated, trendsetting, and
demanding forces continuous innovation and the development or new products and
technologies. Many sources credit the demanding US consumer with forcing US
software companies to continuously innovate, thus creating a sustainable competitive
advantage in software products and services.
3. Local suppliers and complementary industries. To remain competitive, large
global firms benefit from having strong, efficient supporting and related industries to
provide the inputs required by the industry. Certain industries cluster geographicaJly,
which provides efficiencies and productivity.
4. Local firm characteristics. Local firm characteristics include firm strategy, industry
structure, and industry rivalry. Local strategy affects a finn's competitiveness.
A
healthy level of rivalry between local firms will spur innovation and competitiveness.
ln addition to the four determinants of the diamond, Porter aJso noted that government
and chance play a part in the national competitiveness of industries. Governments can, by
their actions and policies, increase the competitiveness of firms and occasionally entire
industries. Porter's theory, along with the other modem, firm-based theories, offers an
interesting interpretation of international trade trends. Nevertheless, they remain
relatively new and minimally tested theories.

Which Trade Theory Is Dominant Today?

The theories covered in this chapter are simply that-theories. While they have helped
economists, governments, and businesses better understand international trade and how to
promote, regulate, and manage it, these theories are occasionally contradicted by real-world
events. Countries don't have absolute advantages in many areas of production or services
and, in fact, the factors of production aren't neatly distributed between countries.
Some countries have a disproportionate benefit or some factors. The United States has ample
arable land that can be used for a wide range or agricultural products. It also has extensive
access to capital. While it's labor pool may not be the cheapest, it is among the best
educated in the world. These advantages in the factors of production have helped the
United States become the largest and richest economy in the world. Nevertheless, the
United States also imports a vast amount of goods and services, as US consumers use their
wealth to purchase what they need and want-much of which is now manufactured in
other countries that have sought to create their own comparative advantages through cheap
labor, land, or production costs.
As a result, it's not clear that any one theory is dominant around the world. This section
has
sought to highlight the basics or international trade theory to enable you to understand the
realities that face global businesses. ln practice, governments and companies use a
combination of these theories to both interpret trends and develop strategy. Just as these
theories have evolved over the past five hundred years, they will continue to change and
adapt as new factors impact international trade.
Question 04: What is opportunity cost theory of international
trade?
Opportunity cost, which is reflected in the comparative advantage, is the key
to international trading. We benefit from trade if we are able to obtain a good
from a foreign country by giving up less than we would have to give up to obtain the
good at home.

The opportunity cost theory explains that if a country can produce either commodity X
or. Y, the opportunity cost or commodity X is the amount or the other commodity Y that
must be given up in order to get one additional unit or commodity X.

When an option is chosen from alternatives, the opportunity cost is the "cost" incurred by
not enjoying the benefit associated with the best alternative choice .... Opportunity cost is
a key concept in economics, and has been described as expressing "the basic relationship
between scarcity and choice"

The New Oxford American Dictionarv defines it as "the loss of potential gain from other
alternatives when one alternative is chosen.

In simple terms, opportunity cost is the benefit not received as a result of not selecting the
next best option. Opportunity cost is a key concept in economics, and has been described as
expressing "the basic relationship between scarcity and choice".

The meaning of the concept of opportunity cost can be explained with the help or following
examples:
I. The opportunity cost or the funds tied up in one's own business is the interest
(or profits corrected for differences in risk) that could be earned on those funds in
other ventures.
2. The opportunity cost of the time one puts into his own business is the salary he could
earn in other occupations (with a correction for the relative psychic income in the
two occupations).
3. The opportunity cost of using a machine to produce one product is the earnings that
would be possible from other products.
4. The opportunity cost of using a machine that is useless for any other purpose is nil
since its use requires no sacrifice of other opportunities.

uestion 05: Terms of trade

The terms of trade (TOT) is the relative price of exports in terms of imports and is
defined as the ratio of export prices to import prices. It can be interpreted as the amount
or import goods an economy can purchase per unit of export goods.
An improvement of a nation's terms or trade benefits that country in the sense that it can buy
more imports for any given level or exports. The terms or trade may be influenced by the
exchange rate because a rise in the value of a country's currency lowers the domestic prices
of its imports but may not directly affect the prices of the commodities it exports.
Question 06: What is Balance of Trade (BOT)?
Balance of trade (BOT) is the difference between the value of a
country's imports and exoorts for a given period and is the largest component of
country's balance of payments (BOP). a

W
h
y

i
s

b
a
l
a
n
c
e

o
f

t
r
a
d
e

i
m
p
o
r
t
a
n
t
?
A trade surplus can create
employment and economic
growth, but may also lead to
higher prices and interest rates
within an economy. A country's
trade balance can also influence
the value of its currency in the
global markets, as it allows a
country to have control of the
majority of its currency through
trade.

10
Difference Between Balance Country's Countr ition in the
of Trade and Balance of (Exprnt- y's domestic
Payments lmport) Fund industry
The key difference between Balance of Trade and flow
(Within Encouraging
Balance of Payments lies in the fact that balance of By saving the people to
trade records a country's imports and exports of goods more and country use products
over the world while the balance of payment records consuming - rest of that are
all the transactions of a country's economy with less the manufacture
foreign world) d within the
other countries. goods. country
Bringi
The key difference between Balance of Trade and Imposing ng
Balance of Payments lies in the fact that balance of higher policie
trade records a country's imports and exports of goods import s that
over the world while the balance of payment records taxes to support
lessen the healthy
all the transactions of a country's economy with import of compet
other countries. Balance of trade does not record capital goods
transfers whereas the balance of payment records all the
ca ital transfers from one countr to another. It may be
positive or
negative or
What is it? It It is the monetary It is always
is the difference between zero. zero.
monet transactions or the
ary residents of a country
differe and the rest of the world
nce
betwee
n a
countr
y's
export
and
import

Also known as Commercial balance

or Net Balance or
International payments
exports
Abbr N BOP or B.O.P
eviat X
ed
Estimated in single
as
Includes the currency i.e., the
currencies of currency of a country
Curr
countries where
ency
trade(import and
export) happens.

What impact It means that the country has a Country's

is created currency faces appreciation
when it is Trade surplus i.e., exports more
positive?

Formul How to Steps that are usually

a to fix a taken by Governments to
calculat deficit? improve it?
e

11
Question 07: Documentation for foreign exchange
There are three important documents which are normally involved in the foreign trade. The
three documents are bill of exchange, bill of lading and letter of credit. Documentation in
foreign trade is designed in such a way to ensure that the exporter will receive payment
and the importer will receive the merchandise.
Documents Required
• Passport.
• PAN card. (payment account number)
• Voter ID card.
• Driving licence.
• Government ID card.
• Photo ration card.
• Senior citizen ID card.

Question 08: FOREIGN TRADE OF BANGLADESH AND IT'S Strategies

Foreign trade is of vital importance to the economic development of Bangladesh. The

country's import needs are large and the imperative to increase exports is immediate. In
order to finance those imports and also to reduce the country's dependence on foreign aid
grants, the government, since liberation, has been trying to enhance foreign exchange
earnings through planned and increased exports. The significance of foreign trade to the
economy is manifest in a number of facts and figures.
In 1991-92, foreign trade's contribution to government revenue was more than 37 percent;
export-oriented industries' contribution to industrial value-addition was 56 percent; export
industries' share of employment in the manufacturing sector was 60 percent, and the growth
of export earnings was 16.09 percent. During the last decade export earnings at current dollar
prices increased by 14 percent per annum.
Export GDP ratio rose to 8.3 percent in 1991-92 from 4.1 percent in 1973-74, and 6 percent
in 1985-86. Similarly, import GDP ratio declined from 18 percent in 1985-86 to 14.6
percent in 1991-92. Export-import ratio rose from 33 percent in 1985-86 to 57.7 percent in
1991-92. At present, major exports are raw jute, jute goods, tea, leather, frozen fish and
read-made garments, while major imports are capital goods, food grains, petroleum and
oil, yarn and textiles.
Strategies
The government has taken following strategie to boost export:
• Simplification of export procedures and strengthening export-led co-operation
through reducing regulatory role of the government;
• Rationalization of the value ofTaka to make the export trade more attractive;
• Creation of an Export Promotion Fund (EPF) for strengthening the export activities;
• Encouraging establishment of backward linkage industries through utilization of
locally available raw materials;
• Participation in international trade fairs, single country exhibitions and specialized
fairs and sending business delegations abroad for expansion and consolidation of
existing markets and creation of new markets;
 • Expediting BMRE of existing wet-blue producing tanneries and converting them
into finished leather producing and exporting units;
• Accelerating expansion of improved traditional and semi-intensive methods of shrimp
cultivation for enhancing export off
• Allowing import of high quality foundation-tea for blending and establishing the
brand name or Bangladesh tea through marketing;
• Taking measures to improve quality, increase production and expand market of
exportable agricultural products;
• Undertaking activities for increasing export of computer software, engineering
consultancy and services;
• Expediting steps for export or labour intensive electronic and engineering products
keeping in view the market requirements in the USA and other developed countries;
• Promoting export or electronic components and engineering items to various
countries;
• Providing appropriate financing facilities for production of components of electronic
and engineering items for marketing on consignment basis;
• Expanding the list of products under crash programme beyond 4 products (toys,
luggage and fashion items electronic and leather goods) and including 8 more items
such as diamond cutting and polishing, jewelleries making, stationery articles, silk,
gift items, cut artificial flower & orchid, vegetables, engineering consultancy &
services for export;
• Organizing commodity-wise trade fairs of international standard in the country;
• Developing and expanding infrastructural facilities for export trade; and
• Creating product-development councils for important products.

Question 09: What is the main role of the international Monetary Fund?
The IMF oversees the international monetary system and monitors the financial and
economic policies of its members. It keeps track of economic developments on a
national, regional. and global basis, consulting regularly with member countries and
providing them with macroeconomic and financial policy advice.

What is difference between Th1F and World Bank?

The main difference between the International Monetary Fund (I.MF) and the
World
Bank lies in their respective purposes and functions. The IMF
oversees the world's monetary system's stability, while the World Bank's goal is to reduce
poverty by offering assistance to middle-income and low-income countries.

What is the purpose of the International Monetary Fund and the World Bank?
The main difference between the International Monetary Fund (IMF) and the World
Bank lies in their respective purposes and functions. The IMF oversees the world's
monetary system's stability, while the World Bank's goal is to reduce poverty by offering
assistance to middle-income and low-income countries.

Economic integration is an arrangement among nations that typically includes the

reduction or elimination of trade barriers and the coordination of monetary and fiscal policies.
Question 10: Free Trade Area

A free-trade area is the region encompassing a trade bloc whose member countries
have signed a free trade agreement (FTA). Such agreements involve cooperation
between at least two countries to reduce trade barriers, import quotas and
tariffs, and to increase trade or goods and services with each other.

NAITA
The North American Free Trade Agreement (NAITA) is a treaty entered into by the United
States, Canada, and Mexico; it went into effect on January I, 1994. (Free trade had
existed between the U.S. and Canada since 1989; NAITA broadened that arrangement.)

SAITA
The South Asian Free Trade Area (SAITA) is the free trade arrangement of the South Asian
Association for Regional Cooperation (SAARC). The agreement came into force in 2006,
succeeding the 1993 SAA RC Preferential Trading Arrangement.