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Question
Explain how, in modern times, trade is the basis of world's economic organisation and is related to the foreign policy of the nations.
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Solution
- 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.
- With well developed transportation and communication systems, no country is willing to forego the benefits derived from participation in international trade.
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