Benefits Of International Trade

International trade exists on the premise that every country cannot produce all that they require using their resources within a given cost bracket and/or quality requirements. International Trade is the exchange of goods and/or services between entities from two or more different countries. In economics, we attribute International Trade to Comparative advantage. Mankiw states ‘all countries can benefit from trading one another because trade allows each country to specialize in doing what it does best.’ This simply means that countries have an advantage over the others in producing a particular good or service which the others may not be able to produce at a given price point or quality requirements. This puts the competitive advantage in the

International trade also includes transfer of resources of production, particularly capital, from one country to another. This, however, does not go to say that countries that do not trade internationally don’t produce all of the goods and services required by them.

Benefits of International Trade

International trade, at face value, has one basic benefit – allowing for purchase of goods and services at low prices. This puts more income in the hands of households as they can use their disposable incomes in purchasing cheaper goods and services. The country as a whole benefits as well as its resources can be applied in producing goods and services which it has a comparative advantage in producing and add a larger contribution to its GDP. The sellers of an exporting country get the advantage of increasing their prices in-line with the world prices, which would ideally be higher than the domestic prices if the exporting country has a competitive advantage in producing the commodity to be exported. This puts in more money into their pockets, hence increasing their profitability and their contribution to the GDP and tax revenues. Trade can also

Countries that import essential commodities from other nations become dependent on the exporting nations for the fulfilment of the need of their people of that commodity. This happens because the domestic producers are often de-motivated from producing imported commodities of identical attributes that are available at lower prices in the market. These producers move on to production of other commodities and reduce the domestic supply of these commodities. This also limits growth of industries in the importing country as incentives that a producer derives from operating in a particular industry may be minimized with the introduction of import substitutes, which may be of superior quality and utility. Often, countries import essential commodities that cannot be produced domestically or can only be produced in small quantities which do not meet the demand for them. For example, most countries around the world import oil from OPEC, Venezuela etc. as their domestic supplies don’t match up to their domestic produce. This makes them dependent on these oil exporting countries for a commodity as basic as oil. If these countries stop exporting oil, most of the world would come to a standstill in a matter of weeks as the worldwide demand can only be met by their supply. On the flip side, if producers of a country find comparative advantage in international trade of a particular commodity, they start focussing on