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Role of Local communities and barter transactions in a country

Local communities are the fundamental unit of a country’s demography. Not only these communities shape the demand and supply of the country but also help in gaining capital flows and foreign investments from other countries. Despite being a fundamental unit of the economic periphery, it is often ignored by several aspects. Local communities define the means and the end to achieve them. Often the state and the markets are given more importance and it causes imbalance.

Source: The Aspen Institute Forum for Community Solutions

The demand generated by these local communities helps the country to balance out its current account. At the same time, these communities help in the export of goods and services. For instance, the local communities producing Mulberry Silk in China have a distinct identity in the world market space. It induces craftsmen from all over the world to come into China and bring out the most efficient ways of procuring the material in the most economical time. The demand for skilled immigrants is required for the product in such local communities. Similarly, each community has a separate culture of its own. One may emphasize individualism and personal drive while the other helps in building consensus. This helps to establish industries that boost economic growth and employment in the country. For instance, Jute production in West Bengal is well known throughout the country. This brings revenue to the state of West Bengal because it is required in almost all market places throughout the country. This brings in capital inflows, develops infrastructure especially in that area, and facilitates economic development by reducing poverty in the country as a whole.

The local community also induces the level of literacy achieved. The Chicago Nobel laureate economist, James Heckman stresses the fact that a child’s attitude towards learning and future is shaped by the family and the community. This leads to the literacy levels in the country. A country having homogeneous communities where literacy is given importance is more likely to have a higher literacy rate. This would increase the labor participation force in the country enhancing growth. Local communities also shape the political structure of a country. These representatives are chosen by the local communities to draft policies and rules which either benefit the country or creates major disadvantages. Policies relating to liberalization, commercialization, and sanctions on goods and services play a key role in the macroeconomic framework of the country at large. This affects the balance of payments, level of development of a community, skillset of the laborers, and also depicts the identity of the community. A country where the local communities are very rigid and stringent in relation to their rules and regulations would cause difficulty in doing business which causes a level of stagnancy in growth.

Local communities also facilitate barter systems through internal trade. To a particular level, the barter system might be an essential driver for growth but eventually, it also costs the economy in the long run. Barter transactions are so varied that one cannot conclude their effect on the economy at large. When a pure barter deal comes into the picture, the compensation dealers demand a substantial amount of discounts because they would demand a good which would have a higher nominal value than the good one is supplying. The difference which is earned by the originator of the deal is basically to cover costs. But barter system facilitates local trade between communities which helps in the exchange of goods and services which leads to easier procurement of raw materials and enhances production. But this system needs to be kept under control. It might increase new avenues of markets but at the same time can be detrimental to society because the goods and services are taken in exchange for each other without imposing a price. It is difficult to evaluate the level of growth and progress in a community. A barter system is also prevalent in banks which internationally attract investors and other financial institutions to invest in the country. It is easier for a system to work in a homogeneous framework where communities have similar demand and supply patterns. Instead of reducing competition, this method would increase the competition in the economy which would affect the producers. But on the consumer side, they will be having a variety of choices to deal with. This will not benefit the production side and firms will not be able to achieve economies of scale.

Source: California Association for Local Economic Development

 It would really be beneficial in such an economy where production is not varied into several products which require different materials in making or producing them. Therefore, it is advisable for a local community to measure the extent to which it should use such a system.

Local communities and the barter system have considerable roles to play in an economy. It has been observed in several studies that both of them can facilitate the growth of a country by the generation of jobs, increase production capacity, reduction in poverty, increasing purchasing power, and holistic development. Some studies have also shown that such local communities are so involved in their traditional cultures and norms that it is really difficult to do business in such areas. On the other hand, the barter system has its advantages and disadvantages which either helps in economic growth and trade or becomes a hurdle to the same.

Written by- Shohom Pal



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