Vent for Surplus Theory (HINDI)

Description: Vent for the surplus was first propounded by Adam Smith. While stressing the need for international trade as in its absence the domestic market for the goods that can be produced at the 'production possibility frontier (PPF)' may not be sufficient and therefore, in the absence of international trade, force the producers to produce less than what can be potentially produced. This, for all practical purposes, push the PPF inward. Interest in 'Vent for Surplus Theory (VfS)' was resurfaced when during the 1950s and 60s çomparative cost advantage (CCA) theory came under severe attack on the ground that it does not capture the realities of the less developed countries (LDCs). Hla Myint in his study demonstrated that (VfS) surplus explains such realities (those of LDCs) better. His contention was that there exist surplus resources - especially the labor as the unemployment in these countries is structural. So unlike CCA theory which emphasized the reallocation of resources to use them efficiently, in LDCs extra resources need to be absorbed. But limited market acts as a big impediment. It keeps the production at less than its potential level which in turn deprive the producers to earn and invest more. Therefore without trade economy may perpetually operate at sub-optimum level. But if the economy opens up to international trade surplus resulting from the lack of effective demand may be exported enabling the country to have more of other goods than it could be domestically produced.
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