Internationalism International Trade

International trade in its most basic form is exchanging goods, capital and services among different countries and regions with minimum or no obstruction or hindrance. Existing over the years due to many benefits accruing to participating trading partners, international trade accounts for a good part of GDP for a trading country. Via modern techniques of production, efficient transportation systems, corporations belonging to different nations, outsourcing manufacturing activities and services along with rapid industrialisation, international trade are growing very fast. It is a new or burgeoning topic as the concept of trade itself has been around since time immemorial. While history tells us of the silk route of the 14th and 15th century or

International trade from the very inception of trade theories is believed to consist of countries exporting goods most suited to their factor endowments, technology, and climate whereas importing goods least suited to its given endowments. Such trade is known as inter-industry trade as countries export and import products of different industries. But the major exports and imports of most of the industrial countries are quite similar items, such as electrical generators, passenger cars or transistors and valves. In reality, international trade is primarily trade within broad industrial classifications. Intra-industry trade takes place when a country exports and imports goods belonging to the same industry. The two-way exchange of goods which occurs ‘within’ the boundaries of an industry, instead of ‘between’ industries is known as intra-industry trade. Balassa (1966), was the first one to present a measure of intra-industry trade. While intra-industry trade has been an important topic among economists in recent decades it has not received much attention from economists in general. ‘Product differentiation’ forms the basis of this type of trade because the products differing either

The former refers to trade among goods which are differentiated because of attributes apart from quality. On the other hand, the latter refers to very close substitutes which are differentiated purely based on quality. While economies of scale explain horizontal IIT, income distribution differences within a country lead to vertical IIT. In recent times, this subject is gaining momentum in the field of Economics. Our aim through this paper is to provide an insight into the welfare implication of intra-industry trade on an economy, characterized by unemployment and the effect of foreign capital inflow on unemployment in such a set-up. Further we wish to study the importance of variety gains on factor price equalization. In subsequent sections a brief empirical study of India is to be presented. Lastly, an attempt will be made to verify whether empirical results conform to the theory of intra-industry