Question

How does foreign trade lead to integration of markets across countries? Explain with an example other than those given here.

Answer 1

Integration of markets and Integration of production is vital to understand the process of globalisation and its impact.

• Goods travel from one market to another when trade is opened between countries.
• Foreign trade opens up scope for the producers of one country to reach beyond their domestic markets.
• Producers can sell their produce and compete in markets located in other countries of the world apart from markets located within its country.
• One way of expanding the choice of goods for the consumers is import of goods produced in another country beyond what is domestically produced.

Benefits Arising from Foreign Trade

• The consumers will have more choice of goods in the markets
• In the two markets, the prices of similar goods tend to become equal.
• Even though producers in the two countries are separated by thousands of miles, now, they get to compete against each other for market domination.
• More integration of markets of different countries.

Example: Indian Imports

• India imports many different types of goods which are produced across the world.
• Some of the important or major import products of India are electrical machinery, nuclear machinery, organic chemicals, plastic items, fertilisers, iron and steel items, optical and medical instruments, vehicles and accessories, iron and steel, precious and semi-precious stones etc.

Example of Chinese Toys in India

• Chinese toys were able to access Indian markets due to opening up of trade ties between India and China.
• In the competition between Chinese and Indian toys, Chinese toys have proven in the market that they are better.
• Compared to earlier days, toys have become cheaper in the Indian markets.
• For Indian buyers there is more choice while purchasing toys. In addition to greater choice the prices are lower.
• Because of new designs and cheaper prices, Chinese toys have gained more popularity in the Indian markets.
• As a result, within a year, 70 to 80 percent of the toy shops sell Chinese toys and Indian toys have been replaced.
• Due to stiff competition from Chinese toys, Indian toys have lost their domestic market, thereby facing loss.