Factor endowment

In economics a country's factor endowment is commonly understood as the amount of land, labor, capital, and entrepreneurship that a country possesses and can exploit for manufacturing. Countries with a large endowment of resources tend to be more prosperous than those with a small endowment, all other things being equal. The development of sound institutions to access and equitably distribute these resources, however, is necessary in order for a country to obtain the greatest benefit from its factor endowment. Nonetheless, the New World economies inherited attractive endowments such as conducive soils, ideal weather conditions, and suitable size and sparse populations that eventually came under the control of institutionalizing European colonists who had a marginal economic interest to exploit and benefit from these new discoveries. Colonists were driven to yield high profits and power by reproducing such economies vulnerable legal and political framework, which ultimately led them towards the paths of economic developments with various degrees of inequality in human capital, wealth, and political power.

Quantitative restrictions, trade: Quantitative restrictions are

limitations on the quantity or value of a product that may be permitted to enter a country. They are probably the most familiar of the nontariff barriers and include quotas, embargoes, restrictive licensing, and other means of limiting imports. The Uruguay Round Agreement on Agriculture requires the conversion of quantitative restrictions to bound tariffs and tariff rate quotas. Quantitative Restrictions proposed to be introduced in Indian Safeguard Law: Issue and Perspectives The Foreign Trade (Development and Regulation) Amendment Bill, 2009 brings forth an interesting development in international trade, namely the introduction of the much abused Quantitative Restriction provision into the Indian legal system. The relevant extract of the Bill is reproduced below for the reference of the reader wherein it is stated 9A. (1) If the Central Government, after conducting such enquiry as it deems fit, is satisfied that any article is imported into India in such increased quantities and under such conditions as to cause or threaten to cause serious injury to domestic industry, it may, by notification in the Official Gazette, impose such quantitative restrictions on the import of such articles as it may deem fit: Provided that no such quantitative restrictions shall be imposed on an article originating from a developing country so long as the share of imports of that article from that country does not exceed three per cent. or where that article originates from more than one developing countries, then, so long as the aggregate of the imports from all such countries taken together does not exceed nine per cent. of the total imports of that article into India.

(2) The quantitative restrictions imposed under this section shall, unless revoked earlier, cease to have effect on the expiry of four years from the date of such imposition: Provided that if the Central Government is of the opinion that the domestic industry has taken measures to adjust to such injury or threat thereof and it is necessary that the quantitative restrictions should continue to be imposed to prevent such injury or threat and to facilitate the adjustments, it may extend the said period beyond four years: Provided further that in no case the quantitative restrictions shall continue to be imposed beyond a period of ten years from the date on which such restrictions were first imposed. (3) The Central Government may, by rules provide for the manner in which articles, the import of which shall be subject to quantitative restrictions under this section, may be identified and the manner in which the causes of serious injury or causes of threat of serious injury in relation to such articles may be determined. (4) For the purposes of this section (a) developing country means a country notified by the Central Government in the Official Gazette, in this regard; (b) domestic industry means the producers (i) as a whole of the like article or a directly competitive article in India; or (ii) whose collective output of the like articles or a directly competitive article in India constitutes a major share of the total production of the said article in India; (c) serious injury means an injury causing significant overall impairment in the position of a domestic industry; (d) threat of serious injury means a clear and imminent danger of serious injury;. It is perhaps quite relevant to note in this regard that as many as 16 cases were initiated by the Indian safeguard authority (Directorate General of Safeguards) in the year 2008 and 2009. Therefore, an assumption that the Quantitative Restriction provision would remain a mere enabling provision without being put in use may be quite misplaced. Of course, with recession saying its final good bye, the use of safeguards as a weapon to protect the Domestic Industry is also witnessing a corresponding decline. Section 8B of the Indian Customs Tariff Act, 1975 and the Customs Tariff (Identification and Assessment of Safeguard Duty) Rules, 1997 (except in exports from China which is subject to a China specific Safeguard law) provide for the imposition of a safeguard duty in the event increased imports cause or threaten to cause serious injury to the Domestic Industry. While the WTO Safeguards Agreement recognizes the use of quantitative measures to pursue safeguard measures (See Article 5.1), Indian law has hitherto focused on safeguard remedy through the provision of remedial safeguard duty.

Quantitative Restrictions are forbidden by Article XI of GATT, 1994 except in certain limited situations covered by Article XI.2(c). None of these situations apply to safeguard measures taken to protect the Domestic Industry from surged imports. Therefore it is safe to assume that the measures fall foul of Article XI. Such a measure which is in contravention of GATT, 1994, could be nevertheless WTO consistent, if it is consistent with the WTO Safeguards Agreement, by virtue of the General Interpretative Note to Annexure IA of the Agreement establishing the WTO. The consistency should be understood with due regard to the position of the WTO as stated in Indonesia Autos that there is a presumption against conflict. The WTO Safeguards Agreement in Article 5 states A Member shall apply safeguard measures only to the extent necessary to prevent or remedy serious injury and to facilitate adjustment. If a quantitative restriction is used, such a measure shall not reduce the quantity of imports below the level of a recent period which shall be the average of imports in the last three representative years for which statistics are available, unless clear justification is given that a different level is necessary to prevent or remedy serious injury. Members should choose measures most suitable for the achievement of these objectives.

European Union
The European Union (EU) is an economic and political union of 27 member states which are located primarily in Europe.[7] The EU traces its origins from the European Coal and Steel Community (ECSC) and the European Economic Community (EEC) formed by six countries in the 1950s. In the intervening years the EU has grown in size by the accession of new member states, and in power by the addition of policy areas to its remit. The Maastricht Treaty established the European Union under its current name in 1993.[8] The last amendment to the constitutional basis of the EU, the Treaty of Lisbon, came into force in 2009. The EU operates through a hybrid system of supranational independent institutions and intergovernmentally made decisions negotiated by the member states.[9][10][11] Important institutions of the EU include the European Commission, the Council of the European Union, the European Council, the Court of Justice of the European Union, and the European Central Bank. The European Parliament is elected every five years by EU citizens. The EU has developed a single market through a standardised system of laws which apply in all member states including the abolition of passport controls within the Schengen area.[12] It ensures the free movement of people, goods, services, and capital, [13] enacts legislation in justice and home affairs, and maintains common policies on

trade,[14] agriculture,[15] fisheries and regional development.[16] A monetary union, the eurozone, was established in 1999 and is currently composed of seventeen member states. Through the Common Foreign and Security Policy the EU has developed a limited role in external relations and defence. Permanent diplomatic missions have been established around the world and the EU is represented at the United Nations, the WTO, the G8 and the G-20. With a total population of over 500 million inhabitants,[17] in 2010 the EU generated an estimated 26% (US$16.282 trillion)[18] of the global economy, or 20% (US$15.170 trillion) when adjusted in terms of purchasing power parity.[19] After World War II, moves towards European integration were seen by many as an escape from the extreme forms of nationalism which had devastated the continent.[20] One such attempt to unite Europeans was the European Coal and Steel Community which, while having the modest aim of centralised control of the previously national coal and steel industries of its member states, was declared to be "a first step in the federation of Europe".[21] The founding members of the Community were Belgium, France, Italy, Luxembourg, the Netherlands, and West Germany. The originators and supporters of the Community include Jean Monnet, Robert Schuman, Paul Henri Spaak, and Alcide De Gasperi.[22] In 1957, the six countries signed the Treaties of Rome, which extended the earlier cooperation within the European Coal and Steel Community (ECSC) and created the European Economic Community, (EEC) establishing a customs union and the European Atomic Energy Community (Euratom) for cooperation in developing nuclear energy. The treaty came into force in 1958

eography
The territory of the EU consists of the combined territories of its 27 member states with some exceptions, outlined below. The territory of the EU is not the same as that of Europe, as parts of the continent are outside the EU. Some parts of member states are not part of the EU, despite forming part of the European continent (for example the Isle of Man and Channel Islands (three Crown Dependencies), and the Faroe Islands (a territory of Denmark)). The island country of Cyprus, a member of the EU, is closer to Turkey than to continental Europe and is often considered part of Asia.[37] [38] Several territories associated with member states that are outside geographic Europe are also not part of the EU (such as Greenland and Aruba). Some overseas territories are part of the EU even though geographically not part of Europe, such as the Azores, French Guiana, Martinique, and Melilla. As well, although being technically part of the EU,[39] EU law is suspended in Northern Cyprus as it is under the de facto control of the Turkish Republic of North Cyprus, a self-proclaimed state that is recognised only by Turkey.

Euro

The euro (sign: ; code: EUR) is the official currency of the eurozone: 17 of the 27 member states of the European Union (EU). It is also the currency used by the EU institutions. The eurozone consists of Austria, Belgium, Cyprus, Estonia, Finland, France, Germany, Greece, Ireland, Italy, Luxembourg, Malta, the Netherlands, Portugal, Slovakia, Slovenia and Spain.[2][3] The currency is also used in a further 6 European countries (Montenegro, Andorra, Monaco, San Marino, Kosovo and the Vatican) and is consequently used daily by some 327 million Europeans.[4] Additionally, over 175 million people worldwide use currencies which are pegged to the euro, including more than 150 million people in Africa. The euro is the second largest reserve currency as well as the second most traded currency in the world after the US$.[5][6] As of June 2010, with more than 800 billion in circulation, the euro has the highest combined value of banknotes and coins in circulation in the world, having surpassed the U.S. dollar.[note 14] Based on IMF estimates of 2008 GDP and purchasing power parity among the various currencies, the eurozone is the second largest economy in the world.[7] The name euro was officially adopted on 16 December 1995.[8] The euro was introduced to world financial markets as an accounting currency on 1 January 1999, replacing the former European Currency Unit (ECU) at a ratio of 1:1. Euro coins and banknotes entered circulation on 1 January 2002.[9

Administration
The euro is managed and administered by the Frankfurt-based European Central Bank (ECB) and the Eurosystem (composed of the central banks of the eurozone countries). As an independent central bank, the ECB has sole authority to set monetary policy. The Eurosystem participates in the printing, minting and distribution of notes and coins in all Member States, and the operation of the eurozone payment systems. The 1992 Maastricht Treaty obliges most EU Member States to adopt the euro upon meeting certain monetary and budgetary requirements, although not all states have done so. The United Kingdom and Denmark negotiated exemptions,[10] while Sweden turned down the euro in a 2003 referendum, and has circumvented the obligation to adopt the euro by not meeting the monetary and budgetary requirements. All nations that have joined the EU since 1993 have pledged to adopt the euro in due course.

Economics
[edit] Optimal currency area
In economics, an optimum currency area (or region) (OCA, or OCR) is a geographical region in which it would maximize economic efficiency to have the entire region share a single currency. There are two models, both proposed by Robert A. Mundell: the stationary expectations model and the international risk sharing model. Mundell himself advocates the international risk sharing model and thus concludes in favour of the euro.[44] However, even before the creation of the single currency, there were concerns over diverging economies. Yet the chances of a state leaving the euro, or the chances that the whole zone would collapse, are extremely slim.[45]

[The most obvious benefit of adopting a single currency is to remove the cost of exchanging currency, theoretically allowing businesses and individuals to consummate previously unprofitable trades. For consumers, banks in the eurozone must charge the same for intra-member cross-border transactions as purely domestic transactions for electronic payments (e.g., credit cards, debit cards and cash machine withdrawals). The absence of distinct currencies also removes exchange rate risks. The risk of unanticipated exchange rate movement has always added an additional risk or uncertainty for companies or individuals that invest or trade outside their own currency zones. Companies that hedge against this risk will no longer need to shoulder this additional cost. This is particularly important for countries whose currencies had traditionally fluctuated a great deal, particularly the Mediterranean nations. Financial markets on the continent are expected to be far more liquid and flexible than they were in the past. The reduction in cross-border transaction costs will allow larger banking firms to provide a wider array of banking services that can compete across and beyond the eurozone.

[edit] Price parity

Another effect of the common European currency is that differences in prices in particular in price levels should decrease because of the 'law of one price'. Differences in prices can trigger arbitrage, i.e. speculative trade in a commodity across borders purely to exploit the price differential. Therefore, prices on commonly traded goods are likely to converge, causing inflation in some regions and deflation in others during the transition. Some evidence of this has been observed in specific markets.[48]

[edit] Trade
The consensus from the studies of the effect of the introduction of the euro is that it has increased trade within the eurozone by 5% to 10%.[50] On the lower bound, one study suggested an increase of 3%.[51] A recent study estimates this effect to be between 9 and 14%.[52] Nevertheless, a recent meta-analysis of all available studies suggests that the prevalence of positive estimates is caused by publication bias and that the underlying effect may be negligible.[53]

[edit] Investment
Studies have found a negative effect of the introduction of the euro on investment as of 2008 economic collapse and the continued currency speculation by Goldman Sachs . Physical investment seems to have increased by 5% in the eurozone due to the introduction.[54] Regarding foreign direct investment, a study found that the intraeurozone FDI stocks have increased by about 20% during the first four years of the EMU.[55] Concerning the effect on corporate investment, there is evidence that the introduction of the euro has resulted in an increase in investment rates and that it has made it easier for firms to access financing in Europe. The euro has most specifically stimulated investment in companies that come from countries that previously had

weak currencies. A study found that the introduction of the euro accounts for 22% of the investment rate after 1998 in countries that previously had a weak currency.[56] The effect is however less clear for firms coming from the strong currency countries; the introduction has not been beneficial for most of them.

[edit] Inflation
The introduction of the euro has led to extensive discussion about its possible effect on inflation. In the short term, there was a widespread impression in the population of the eurozone that the introduction of the euro had led to an increase in prices. Paradoxically, this impression has not been supported by general indices of inflation, showing no major effect of the introduction of the euro. A study of this paradox has found that it is due to an asymmetric effect of the introduction of the euro on prices: while it had no effect on most goods, it had an effect on cheap goods which have seen their price round up after the introduction of the euro. The study found that consumers based their beliefs on inflation of those cheap goods which are frequently purchased. [57] It has also been suggested that the jump in small prices may be because prior to the introduction, retailers made fewer upward adjustments and waited for the introduction of the euro to do so.[58]

[edit] Exchange rate risk

One of the advantages of the adoption of a common currency is the reduction of the risk associated with changes in currency exchange rates. It has been found that the introduction of the euro created "significant reductions in market risk exposures for nonfinancial firms both in and outside of Europe"[59] These reductions in market risk "were concentrated in firms domiciled in the eurozone and in non-Euro firms with a high fraction of foreign sales or assets in Europe". These changes were however "statistically and economically small".[citation needed]

[edit] Financial integration

The introduction of the euro seems to have had a strong effect on European financial integration. According to a study on this question, it has "significantly reshaped the European financial system, especially with respect to the securities markets [...] However, the real and policy barriers to integration in the retail and corporate banking sectors remain significant, even if the wholesale end of banking has been largely integrated."[60] Specifically, the euro has significantly decreased the cost of trade in bonds, equity, and banking assets within the eurozone. [61] On a global level, there is evidence that the introduction of the euro has led to an integration in terms of investment in bond portfolios, with eurozone countries lending and borrowing more between each other than with other countries.[62]