Economics(Paper-4) - Shivaji University

development. The foreign capital can be paid out through the effective trade policy at
international level. But the fact is that foreign trade is not favourable to undeveloped
countries. To find the solution for this problem, private foreign Investment, multinationals
and Globalization are the measures to have an economic development of developing
nations.
4.2 Subject Matter :
In this unit we are going to study the various aspects of International Measures for
the economic development as under –
4.2.1 Role of Foreign Trade in Economic Development :
Many economists like Ricardo, Haberler,T. S. Mill. Wortkin, Myint have argued that
foreign trade is an essential condition to have an economic development. Thus, the
classical and new-classical economists attached much importance to international
trade in country’s economic development and regarded it as egine of growth. The
Economists like G. Myrdal, Prebisch, Singer, have enunciated that historically foreign
trade has led to international inequality where the rich countries have become rich at
the expenses of the poor countries. These two approaches tells us the role of foreign
trade in economic development of an economy.
A) Role / Importance of Foreign Trade in Economic Development :
Classical and New-classical Economists have argued that foreign trade possess
great importance for developing economies. According to Haberler…. ‘International Trade
has made a tremendous contribution to the development of less developed countries
in 19 th and 20 th centuries and can be expected to make an equally big contribution in the
future. Thus, free trade is the best policy from the point of view of economic development.
1) Rise in National Income : When a country specializes in the production of a
particular commodity, due to foreign trade and division of labour, at lower cost it exports
to other countries which raise the national income. Thus, trade breaks the vicious circle
of poverty and promotes economic development.
2) Widens the Market : In developing country a small size of domestic market
fails to absorb market surplus. As a result, income, purchasing power and savings and
investment becomes very less. But fact is that foreign trade widens the market and
increases investment, income and savings efficiently. Myint has used the smith’s “Vent
for surplus” theory for developing countries to have gains from international trade. This
theory states that foreign trade provides a better opportunities to developing countries
to produce and export primary products. The following diagrame exhibits “Vent for surplus
theory.”
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