Explain Trade is an Engine of growth of Economics

This article covers the following:

1. Introduction
2. Importance of International Trade
3. Features or characteristics of International Trade
Trade is an Engine of growth of Economics

1. Introduction:

Trade is an Engine of growth of Economics


The importance or role of International Trade

Since the times of mercantilism to classical economists like Adam Smith, Alfred Marshall had given the importance to international trade. The importance of international trade is also called trade as an engine of growth. 

2. Importance:

The main importance of international trade are point out below-

(i) International division of labour and specialisation: International trade ensures the application of principles of division of labour and specialisation to the fields of production and international exchange of commodities by the various countries. 

(ii) Optimum use of world resources: Each country sell it's specialize products in those markets where it can get most remunerative price and buys the essential raw materials and intermediate from those market where these are the cheapest, this leads to an optimum utilisation of all productive resources of the world. 

(iii) Stabilisation of prices: Through international trade, the domestic surplus or shortages in production which leads to serious inflationary and deflationary trends, can removed through exports and imports. 

(iv) Technological progress: The international trade permits a country to imports new machines, equipment, designs and technical services from other countries and can bring about a steady expansion in it's productive capacity. 

(v) Easy flow of capital: The international trade cultivates mutual co-operation among the countries and facilities, the international short term and long term flows of capital. 

(vi) Promotion of competition: The international trade promotes competition among the different countries. The international competition increases the efficiency of production. 

(vii) Greater bilateral co-operation: The international trade emphasis upon the mutuality of interest among the trading countries. It creates consciousness about the problems faced by the different countries. 

(viii) Growth of international economic institutions: The necessity of promoting restriction free international trade for ensuring efficient system of exchange and payment system adjustments and remaining the shortage of international liquidity led to the growth of several multilateral Institutions like IBRD, IMF, IDA, UNCTAN and WTO etc.

(ix) Export led-growth: The export led growth provides sufficient export earning that can do ploughed back for the development not only of export sectors but various other sectors of the economy. 

(x) Basis of economic survival: The economics of several advanced and poor countries are almost completely dependent upon the external trade.

3. Explain the features or characteristics of International Trade?

Following are the distinguishing features or characteristics of international trade-

(i) Immobility of factors: The most prominent distinguishing features of international trade according to classical economists was the perfect geographical immobility of the factors of production like labour and capital among the nations. 

(ii) Mobility of products: In case of international trade, there are several barriers to the free mobility of products apart from distance and transport costs, these includes import and export duties, etc. 

(iii) None-homogeneity of markets: The international markets lack homogeneity on account of difference in languages, tastes, fashion, customs and system of weights and measures. 

(iv) Differences in resources endowments: The different countries have been endowed by nature with different types of natural resources. 

(v) Differences in geographical and climate conditions: The geographical and climate conditions which differ from country to country influence their specialisation in production and export. 

(vi) Differences in currencies: The distinction between the international and inter-regional becomes more explicit because of the existence of different currencies in different countries. 

(vii) Differences in economic environments: Economic environment of different countries are different. 

(viii) Differences in transport costs: The costs of transporting goods to the foreign countries are generally higher because of vast geographical distances between the different countries. 

(ix) International payment problem: In case of international trade, the values of imports and exports between two trading countries over a shorter long period may not get fully method giving rise to surplus on deficit in international payment. 

(x) Differences in trade policies: The trading countries follow different national trade policies concerning imports and exports etc.

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