Benefits of International Trade

Introduction

International trade is defined as the exchange of goods, capital and services between countries across their international borders. The prime reason for any country to engage in International Trade is because there is a need or want of goods or services. It is true that in most countries, International trade represents a big share of the gross domestic product (GDP). Although international trade has been there throughout a large part of our history, the world has started to acknowledge and appreciate its economic, political and social importance only in the past few centuries. It is important to note that carrying out a trade at the international level is a much more complex process vis-a-vis the domestic trade. When there is an exchange of goods, capital or services between two or more nations, there are a number of factors like government policies, currency, judicial system and markets that get involved. As such, it is important for us to appreciate the benefits that international trade can bring to the respective economies.

Advantages of International Trade

There are a number of international organisations like the World Trade Organisations that are working towards making the international trade process smoother. The multilateral and bilateral forums are trying to ensure that the trade between nations becomes easier, which will also end up increasing the overall volume of goods and services exchanged. It is important to note that trade between nations is not easy because of the difference in their economic situation, rules and regulations, customs and several other factors. But with the increasing advent of globalisation in the past few decades, international trade has increased by leaps and bounds. So it is important for us to understand the main benefits of international trade, explained below:

• Optimal use of the natural resources of a country – The international trade between two or more nations helps all of them to make the best possible use of their natural resources. Every country can focus on the production of goods and services using these resources and sell them to other nations to earn foreign exchange and shore up their economy. It also helps to avoid the wastage of crucial resources and use them to improve the overall economic standing of the country.
• Availability of different types of goods and services – One of the major benefits of international trade is that it enables a country to obtain goods and services that it is unable to make on their own due to lack of resources or higher costs of production. They can get these goods from outside the country at relatively lower costs.
• Specialisation in the production of certain goods and services – Some nations are endowed with certain advantages like natural resources, workforce, technology and capital. These resources allow them to engage in the production of certain kinds of goods and services at relatively cheaper costs and sell it to other nations who need them. They can engage in large scale production to cater to the needs of home domestic as consumption as well as serve the international markets. They can also dispose of goods and services which they possess in large quantities to other countries and improve their foreign exchange reserves in return.
• Stability in prices of products and services – It is one of the major benefits of international trade. It helps to iron out the benefits and put a stop to the wild fluctuations that can arise due to the non-availability of these products.
• Exchange of technical expertise – International Trade allows countries with a lack of knowledge in terms of production, manufacturing and technology to access it from other nations. Underdeveloped countries can take the help of the developed ones to establish and develop industries apart from increasing their economic prosperity.
• Improve efficiencies in terms of production and distribution of goods and services – Countries can take advantage of international trade to increase their scale of production and make it more efficient to cater to the demands of other nations. They can also focus on producing better quality products and services while minimising the overall costs.
• Development of transport and communication – International trade between nations can flourish only if the means of transport and communications are robust and highly efficient. Or else, it will lead to bottlenecks that can hamper the viability of the transactions. International trade often acts as an incentive for nations to improve their transportation and communication with other countries to facilitate the continuous exchange of goods and services.
• Improved relations – International trade between nations also leads to a greater scope of communication between the two nations. It enables the exchange of knowledge and ideas as well. This can foster greater cooperation and understanding and act as a cornerstone for developing more cordial relations between the two countries.

Conclusion

The benefits of International Trade far outweigh the risks, and it also leads to greater economic prosperity for the economies involved. The size of the world economy has jumped manifold in the past decade, and it is a result of the increased volume and value of the exchange of goods and services between nations.

Also See:

• Difference between National Income and Private Income
• Difference between Wholesale Price Index and Consumer Price Index
• Difference between Economic Growth and Economic Development
• Difference between Total Utility and Marginal Utility