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Saturday, January 23, 2010

International Trade

  • Trade may be conducted at two levels international and national 
  • International trade is the exchange of goods and services among countries across national boundaries.
  • Countries need to trade to obtain commodities
  • The initial form of trade in primitive societies was the barter system



  • The difficulties of barter system were overcome by the introduction of money.
    HISTORY OF INTERNATIONAL TRADE




  • The Silk Route is an early example of long distance trade connecting Rome to China along the 6,000 km route. The traders transported Chinese silk, Roman wool and precious metals and many other high value commodities from intermediate points in India, Persia and Central Asia.
  • Fifteenth century onwards, the European colonialism began and along with trade of exotic commodities, a new form of trade emerged which was called slave trade.
  • The Portuguese, Dutch, Spaniards, and British captured African natives and forcefully transported them to the newly discovered Americas for their labour in the plantations
  • Slave trade was a lucrative business for more than two hundred years till it was abolished in Denmark in 1792 Great Britain in 1807 and United States in 1808.
Why Does International Trade Exist

  • International trade is the result of specialization in production



  • international trade is based on the principle of comparative advantage, complementarity and transferability of goods and services and in principle, should be mutually beneficial to the trading partners


    Basis of International Trade




  1. Difference in national resources: The world's national resources are unevenly distributed because of differences in their physical make up i.e. geology, relief soil and climate.
  • Geological structure: mineral resource base , topographical differences ensure diversity of crops and animals , Lowlands have greater agricultural potential . Mountains attract tourists and promote tourism.
  • Mineral resources: unevenly distributed the world over. provides the basis for industrial development
  • Climate:: influences the type of flora and fauna
  1. Population factors: The size, distribution and diversity of people between countries affect the type and volume of goods traded.
  • Cultural factors: Distinctive forms of art and craft
  • Size of population: populated countries have large volume of internal trade but little external trade because most of the agricultural and industrial production is consumed in the local markets..
  1. Stage of economic development: different stages of economic development of countries, the nature of items traded undergo changes
  2. Extent of foreign investment: Foreign investment can boost trade in developing countries which lack in capital required for the development of mining, oil drilling, heavy engineering, and lumbering and plantation agriculture. This entire cycle steps up the volume of trade between nations.



  3. Transport: expansions of rail, ocean and air transport, better means of refrigeration and preservation, trade has experienced spatial expansion.


    Important Aspects of International Trade: International trade has three very important aspects. These are volume, sectorial composition and direction of trade.




  • Volume of Trade: the total value of goods and services traded is considered to be the volume of trade



  • Composition of Trade: different stages of economic development of countries, the nature of items traded undergo changes
    in the beginning : Trade of primary products was dominant


    Currently, though the manufacturing sector commands the bulk of the global trade, service sector which includes travel, transportation and other commercial services have been showing an upward trend.
    Machinery and transport equipment, fuel and mining products, office and telecom equipment chemicals, automobile parts, agricultural products, iron and steel, clothing and textiles make up the major items of merchandise which are traded over the world.
    Trade in the service sector is different from trade in the products of primary and manufacturing sectors as the services can be expanded infinitely consumed by many, are weightless and once produced, can be easily replicated and thus, are capable of generating more profit than producing goods
    there are four different ways through which services can be supplied:




  1. Commercial services excluding travel and construction services
  2. Travel
  3. Construction services
  4. Labour flow
  • Direction of Trade:
  • Balance of Trade Balance of trade records the volume of goods and services imported as well as exported by a country to other countries. If the value of imports is more than the value of a country's exports, the country has negative or unfavorable balance of trade. If the value of exports is more than the value of imports, then the country has a positive or favorable balance of trade. Balance of trade and balance of payments have serious implications for a country's economy.


Rest in part 2 ……………….



  • Types of International Trade:
  1. Bilateral trade
  2. Multi-lateral trade


Case for Free Trade:



World Trade Organization:

Regional Trade Blocs

Concerns Related to International Trade

Types of Port

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