Question

Answer the following question in not more than 150 words.

How do nations gain from International Trade?

Answer 1

International trade is the result of specialisation in production. It benefits the world economy if different countries practise specialisation and division of labour in the production of commodities or the provision of services. Each kind of specialisation can give rise to trade. Thus, international trade is based on the principles of comparative advantage, complementarity, and the transferability of goods and services and, in principle, should be mutually beneficial to the trading partners. Engaging in international trade is mutually beneficial to nations, as it leads to regional specialisation.

• Higher level of production: With the availability of foreign technology and production equipment, even developing nations can increase their production levels.
• Better standard of living: With increased production and trade, exports rise, increasing per capita income and raising standards of living.
• Worldwide availability of goods and services: Before the liberalisation of international trade, not all goods were available in all parts of the world, depriving both consumers and producers in developing countries. With international trade, both consumers and producers benefit from the availability of goods.