Question

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 provision of services. Each kind of specialisation can give rise to trade. Thus, international trade is based on the principle of comparative advantage, complimentarity and transferability of goods and services and in principle, should be mutually beneficial to the trading partners. Undertaking international trade is mutually beneficial to nations as it leads to regional specialisation.

• Higher level of production: With availability of foreign technology and production equipments, even developing nations are able to increase their production level.
• Better standard of living: With increased production and trade, there is an increase in exports and hence increased per capita income which gives rise to increased standards of living.
• Worldwide availability of goods and services: Before liberalization of international trade, all goods were not available in all parts of world, which deprived both consumers as well as producers of developing countries. With international trade both consumers and producers benefit from availability of goods.