Question

How does foreign trade lead to integration of markets across countries? Explain with an example other than those given here.

Answer 1

Foreign trade is the main channel which connects the markets of various countries. Foreign trade leads to the integration of markets across countries as follows :

1. Creates opportunities for the producers to reach beyond the domestic markets or the markets of their own countries.
2. The import of goods from various countries provides a choice of goods for consumers beyond the goods that are produced domestically.
3. Producers of different countries compete with each other, although they are thousands of miles away.

Example:

The Indian Readymade Garment Industry: Indian garment manufacturers supply garments to retail marketplaces in the United States and Europe. This enables Western shoppers to select between local brands and imported Indian clothes. Despite their vast geographical distance, local Western garment companies and Indian producers compete fiercely in the same market sector, resulting in cross-border textile market integration.