Importance of International Trade | Free Economic Blogs

Importance of International Trade

Importance of International Trade
Importance of International Trade

Foreign Trade Definition

According to Wasserman and Hultman, “International Trade consists of transactions between residents of different countries”.
According to Anatol Marad, “International trade is a trade between nations”.
According to Eugeworth, “International trade means trade between nations”.

Meaning of Foreign Trade

Foreign Trade is trade between the different countries of the world. It is called as International Trade or External Trade.

International trade is referred to as the exchange or trade of goods and services between different nations. This kind of trade contributes and increases the world economy. The most commonly traded commodities are television sets, clothes, machinery, capital goods, food, and raw material, etc.,

International trade has increased exceptionally that includes services such as foreign transportation, travel and tourism, banking, warehousing, communication, advertising, and distribution and advertising. Other equally important developments are the increase in foreign investments and production of foreign goods and services in an international country. This foreign investments and production will help companies to come closer to their international customers and therefore serve them with goods and services at a very low rate.

Importance of International Trade

1) To earn foreign exchange

Foreign trade provides foreign exchange which can be used for very productive purposes. Foreign trade is a remarkable factor in expanding Foreign Trade of India the market and encouraging the production of goods.

2) Encourages Investment

Foreign trade creates an opportunity for the producers to reach beyond the domestic markets. It encourages them to produce more goods for export. This leads to an increase in total
investment in an economy.

3) Division of labour and specialization

Foreign trade leads to the division of labour and specialization at the world level. Some countries have abundant natural resources, they should export raw materials and import finished goods from countries that are advanced in skilled manpower. Thus, foreign trade gives benefits to all countries thereby leading to the division of labour and specialization.

4) Optimum allocation and utilization of resources

Due to specialization, resources are channelized for the production of only those goods which would give the highest returns. Thus, there is rational allocation and specialization of resources at the international level due to foreign trade.

5) Stability in price level

Foreign trade helps to keep the demand and supply position stable which in turn stabilizes the price level in the economy.

6) Availability of multiple choices

Foreign trade provides multiple choices of imported commodities. As foreign trade is highly competitive it also ensures good quality and standard products. This raises the standard of living of people.

7) Brings reputation and helps earn goodwill

Exporting countries can earn reputation and goodwill in the international market. For example, countries like Japan, Germany, Switzerland etc. have earned a lot of goodwill and reputation in foreign markets for their qualitative production of electronic goods.

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