Role of Foreign Trade

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Notes

Role of Foreign Trade : 
Trade is an engine of growth of an economy,because it plays an important role for economic development. In developed countries it represents a significant share of Gross Domestic Product. 
Role of foreign trade can be justified on the basis of the following points :
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 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 division of labour and specialization at world level. Some countries have abundant natural resources, they should export raw material and import finished goods from countries which are advanced in skilled manpower. Thus, foreign trade gives benefits to all countries thereby leading to 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 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 a good quality and standard products. This raises the standard of living of people.
7) Brings reputation and helps earn goodwill :
Exporting country 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 market for their qualitative production of electronic goods

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