Coal Trade Case Study

Hanink, (1988) presented a model based on geographical product differentiation which directly focuses upon trade as market interactions and defines market homogeneity across national frontiers as the basis of international trade. Which is erected on the modified version of Stefan Burnestam-Linder’s theory of trade among industrialized countries. The inability if factor endowment theory to explain intra-industry trade between countries with similar factor endowments leads many trade analysts to focus on demand, rather than supply, as the basis of trade. Trade theory is developed within the context of trade reality. The theory of comparative advantage was developed at a time when it well described existing trade patterns. As economic reality

According to this study it is primarily governed by existing and changing political boundaries as between nations and their relation to permanent geological conditions i.e. the location of coal measures and character of the coals contained. Author stated that to visualize the world’s coal trade, its not only countries which must be taken into account but also areas, as well as the various factors and conditions entering into the use of coal and its indirect movement after use, in the shape of manufactured goods. The great industrial areas of the world have all been built largely upon the nearness and availability of coal supplies, and by far the greater part of the world's export coals comes from the great industrial nations, from the centres of manufacture, where raw materials are turned into manufactured goods into which coal enters as a basic raw material. Therefore, an export movement of coal, not only as coal, the raw material, but also as a component part of the manufactured goods exported. International trade of coal begins at the mouth of mines. Coal in the ground presents possibilities and various forms; capital, labor and transportation make it commercially effective and valuable. The international trade of coal is not directly associated with returns to capital and labor and their relative value; it pays the market price regardless of the capital invested or the wages of the miner. The market price at the port shipment is usually the starting point of the export coal trade. Four main elements enter into this price:- the total cost of production and selling, the quality of the coal, the cost of transportation (the only fixed cost) and the return to capital invested. Hence, the study emphasise that if exporters really want do business and pursue it, according to the accepted methods in the world’s coal export trade, with properly prepared coals, and with due regard to foreign customs, methods