The concept of international trade starts from over many years a go. According to the pre historical records it has been define as the most success. International trade allows us to expand our markets for both goods and services that otherwise may not have been available to us. The market contains greater competition and therefore more competitive prices, which brings a cheaper product home to the consumer. International Trade takes place because of the variations in productive factors in different countries. The variations of productive factors cause differences in price in different countries and the price differences are the main cause of international trade. There are numerous advantages of international trade accruing to all the participants of such trade.
Benefits of International Trade
Efficient use of productive factors:
One of the biggest benefits of international trade relates to the remunerations accruing from territorial division of labor and international specialization. International trade enables a country to specialize in the production of those commodities in which it enjoys special benefits. All countries are not equally endowed with natural resources and other facilities for the production of goods and services of various kinds. Some countries are richly endowed with land and forest resources, which others happen to have abundant capital resources. Some others have abundant supplies of labor power. Without international trade, a country will have to produce all the goods it requires irrespective of the costs involved. But international trade enables a country to produce only those goods in which it has a comparative advantage or an absolute advantage and import the rest from other countries. This leads to international specialization or division of labor, which, in turn, enables efficient use of the productive factors with minimum wastages. Specialization would also lead to economies of scale and which, in turn, would lead to reduction of cost of products and services.
Equality in commodity and factor prices:
International trade leads to an equality of the prices of internationally traded goods and productive factors in all the trading regions of the world. It should, however, be remembered that the gains arising from international trade shall be available to the participating countries only if trade is free and unfettered. If the trade is subjected to tariff and non-tariff restrictions by the trading countries, the gains of international trade get nullified in the process to a large extend. The economic, political, and social significance of international trade has been theorized in the Industrial Age. The rise in the international trade is essential for the growth of globalization. The restrictions to international trade would limit the nations to the services and goods produced within its territories, and they would lose out on the valuable revenue from the global trade. International trade among different countries is not a new a concept. History suggests that in the past there where several instances of international trade. Traders used to transport silk, and spices through the Silk Route in the 14th and 15th century. In the 1700s fast sailing ships called Clippers, with special crew, used to transport tea from China, and spices from Dutch East Indies to different European countries.
According to the principle of comparative advantage, benefits of trade are dependent on the opportunity cost of production. The opportunity cost of production of goods is the amount of production of one good reduced, to increase production of another good by one unit. A country with no absolute advantage in any product, i.e. the country is not the most competent producer for any goods, can still be benefited from focusing on export of goods for which it has the least opportunity cost of production....
References: Benefits of International Trade – ‘Economy Watch’ -
http://www.economywatch.com/international-trade/benefit.html- (30 June 2010)
Benefits of international trade [Partners in international trade] – ‘HSBC case study’
Please join StudyMode to read the full document