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Import Surge and Domestic Competitiveness
The recent import surge of raw agarbatti in India presumes to have a detrimental impact on the employment and profitability of the domestic firms. A deep dive indicates that imports of bamboo sticks from China and raw incense sticks from Vietnam have adversely affected the domestic incense stick units. The import surge is partly associated with positive trends in firms’ productivity, mainly through the import of intermediate inputs indicating significant heterogeneity of these effects in terms of firms’ proximity to the ports and the initial productivity level.
The world is becoming increasingly interconnected because of a huge growth in trade and cultural exchange facilitated by globalisation. However, there are differing views on global trade openness of the world economies. On the one hand, it is opined that trade openness encourages the countries to operate according to their comparative advantage enabling individual competence to flourish with specialisation encouraging the economies of scale and better utilisation of the country’s abundant resources (Azim 2021). The efficient use of resources and assurance of quality products propel economic growth (Porter 1998). Trade openness has resulted in enhanced participation of the economies in global value chain pushing vertical specialisation, increasing interconnectedness, and narrowing income gaps between emerging and developed markets. The enhanced free trade regime helps benefit the end consumers with lower prices and wider choices.
On the contrary, there are serious concerns that focusing on trade specialisation based on comparative advantages will result into growth in interdependence of countries leading to trade uncertainties and disrupt value chains spread across diverse set of economies at different developmental stages (Blundell-Wignall et al 2013; Surugiu and Surugiu 2015). The strength to the argument in favour of trade protectionism primarily comes from the view that free trade regime causes surge in imports in the developing countries which, in many cases, has led to adverse consequences for the small and marginal firms and subsequent unemployment of their workforce. This has been quite visible in the case of labour-intensive industries like agriculture and textiles with high factor immobility across sectors.
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