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B.A. LL.B. (Five Years) Sem 10 International Trade Economics 2024 Aug Question Paper with Solutions - KSLU

KSLU Solved Question Papers

International Trade Economics

Previous Year Question Paper with Solution

B.A. LL.B. (Five Years) · Sem 10

2024 Aug Examination

munotes.in

Mumbai

First published on munotes.in on 21 October 2026.

Published by munotes.in, Mumbai.

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The Paper as Set

The questions in this volume are the questions asked at the 2024 Aug examination, reproduced as Karnataka State Law University set them, in the order it set them. Long reading passages are shortened to their first and last lines and our summary; the original paper prints them in full. Only the answers are ours. See the original question paper.

Duration 3 hours · Total marks 80 · 20 questions answered

Instructions printed on the paper

N.B. (1) Answer all five Units. (2) One essay type question and short note/problems is compulsory from each Unit. (3) Figures to the right indicate marks. (4) Answers should be written either in English or Kannada completely.

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Read the original question paper

Q1

Unit I

(a)Explain the competitive advantage theory and its significance in International Trade.[10]

Answer

For full marks, cover: the move from comparative to competitive advantage; Michael Porter's theory of the competitive advantage of nations (The Competitive Advantage of Nations, 1990); the four determinants of the "diamond" (factor conditions, demand conditions, related and supporting industries, firm strategy, structure and rivalry) and the roles of chance and government; the firm-level sources of advantage (cost leadership, differentiation, the value chain); a comparison with comparative advantage; its significance for international trade, with Indian examples; criticism; a conclusion.

From comparative to competitive advantage

The classical theories explained trade by natural differences between countries. Adam Smith stressed absolute advantage, and David Ricardo comparative advantage. Later theories stressed differences in land, labour and capital. But these theories could not explain why a few countries lead the world in particular industries. Switzerland leads in watches, Italy in fashion, Japan in cars, and India in software services. These leads are built rather than inherited. This puzzle led to the theory of competitive advantage.

Porter's theory

Michael Porter, in The Competitive Advantage of Nations (1990), argued that national prosperity is created, not inherited. A nation's firms gain advantage through innovation and constant upgrading. Four features of the home country decide whether its firms in an industry succeed. Porter drew them as a diamond.

1. Factor conditions. These are the inputs a country has, such as skilled labour, infrastructure, capital and scientific knowledge. Porter distinguished basic factors, such as natural resources and unskilled labour, from advanced factors, such as engineers and research institutions. Advanced factors are created by investment and give lasting advantage. A shortage of basic factors can even spur innovation.

2. Demand conditions. Demanding home customers force firms to improve quality and innovate early. A large and sophisticated home market prepares firms for world markets.

3. Related and supporting industries. Strong local suppliers and related industries help firms innovate quickly. Such industries tend to group in clusters, where knowledge flows easily.

4. Firm strategy, structure and rivalry. The way firms are organised, and the intensity of competition among them at home, shape their strength abroad. Fierce domestic rivalry pushes firms to cut costs and innovate.

Two outside influences.

Chance: events such as new inventions, wars or sudden shifts in demand can change positions.
Government: it shapes all four determinants through education, infrastructure, regulation, competition policy and standards. It cannot create advantage directly.

Competitive advantage of firms

In his earlier book Competitive Advantage (1985), Porter explained how a firm wins in a market. It may compete by cost leadership, producing at lower cost than rivals, or by differentiation, offering something buyers value and will pay more for. He analysed a firm's activities as a value chain, from inputs and production to marketing and service. Advantage lies in performing these activities better or more cheaply than rivals.

Comparative and competitive advantage compared

Point	Comparative advantage	Competitive advantage
Source	Natural endowments and relative costs	Innovation, skills, clusters, rivalry
Nature	Given, static	Created, dynamic
Unit	The nation	Firms and industries in a nation
Role of government	Free trade	Building skills, infrastructure, competition

Significance in international trade

1. Explains trade in modern goods. Much world trade is in high-skill goods and services that natural endowments cannot explain. The diamond explains why particular countries lead in them.

2. Guides trade and industrial policy. It tells governments to invest in education, research and infrastructure, encourage clusters and keep domestic markets competitive. Protecting firms from competition weakens them.

3. Indian examples. India's information technology services grew from a pool of English-speaking engineers and clusters in Bengaluru and Hyderabad. Fierce rivalry among firms such as TCS and Infosys sharpened them further. Its pharmaceutical industry grew from strong chemistry skills and intense domestic competition. The Surat diamond cluster shows the strength of related industries and skills.

4. Explains export success. Firms that win at home against tough rivals and demanding buyers are best placed to win abroad.

5. Links with the WTO system. Open markets under the WTO expose domestic firms to foreign competition and give them access to world demand. Both sharpen the diamond. Rules on subsidies and investment measures also limit how far governments can create advantage by direct help. So policy must work through skills, research and infrastructure instead.

Criticism

It is built on studies of developed countries and fits developing economies less well.
It underplays the role of multinational companies, whose advantage does not depend on one home country.

Small open economies may rely on foreign rather than home demand and suppliers.
Its determinants are hard to measure, so the theory is better at explaining than predicting.

Conclusion. The competitive advantage theory holds that nations succeed in particular industries because of created advantages. These are skills, demanding home buyers, strong clusters and fierce domestic rivalry, supported by government and helped by chance. It complements comparative advantage by explaining trade in modern, skill-based goods and services. Its main lesson for India is to build skills, infrastructure and competition rather than rely on cheap labour or protection.

B.A. LL.B. (Five Years) Sem 10 International Trade Economics 2024 Aug Question Paper with Solutions

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