Assignment 2

BPS

Write a note on trade theory’s identifying the BOP along with

the FDI?
Trade Theory. The aim of Trade Theory is to explain the existing patterns
of trade, the impact on the domestic economy, and the type of public policies
that should be introduced to increase a country's well-being

Various theory’s of trade

 Mercantilism. Developed in the sixteenth century, mercantilism. ...
 Absolute Advantage. In 1776, Adam Smith questioned the leading
mercantile theory of the time in The Wealth of Nations. ...
 Comparative Advantage. ...
 Heckscher-Ohlin Theory (Factor Proportions Theory) ...
 Leontief Paradox.

An instrument of economic growth and development, it is asserted that foreign

direct investment (FDI) enables a capital deficient and less developed country to
build up physical capital. It also creates opportunities of employment and
enhances skills of local labourers through various externalities. The history of
FDI in India actually lies in the colonial rule. During the colonial rule, investors
from Britain did set up their units in India, Britishers mostly attempted to invest
in mining sector to meet their own ends and in those sectors that suited their
own economic and business interest. The intention was specifically to acquire
raw materials from India for their own manufacturing units

Modern trade theory

Modern theory of trade emphasizes that there is market imperfection.
According to this approach the market imperfections are structural i.e.
imperfections of monopolistic nature. Market imperfections arise from the
specific advantage also known as ownership advantages enjoyed by an
enterprise