International Economics
Unit I – International Trade
Introduction - Definition - Need – Types International Trade – Difference Between Internal
and International Trade – Importance of International Trade in Global Context.
Introduction
The term “trade” generally means exchange of goods among different individuals. If
such exchange of goods takes place between two individuals or firms of the same country.
Inter-regional trade refers to trade between regions within a country. It is what Ohlin calls
inter-local trade. Thus inter-regional trade is domestic or internal trade. International trade,
on the other hand, is trade between two nations or countries.
Meaning
International trade is the exchange of goods and services between countries. It's also known
as global trade.
Definition
• According to Wasserman and Haltman, “International trade consists of transaction
between residents of different countries”.
• According to Anatol Marad, “International trade is a trade between nations”.
• According to Eugeworth, “International trade means trade between nations”.
Advantages of International Trade
1. Better use of Resources. The producers try to control the cost by optimum combination of
factors of production. So there is no misuse of production factors.
2. Economies of Large Scale. The economies of production, transport, management, finance
and advertisement are available to the producers.
3. Cultural Diversity. The import and export of goods and services introduces the taste and
preference of one group of people to the rest of the world.
4. Monopoly. It eliminates monopoly, sometimes goods and services can be important and
surplus can be exported. In both cases the seller cannot create monopoly in the market.
5. Employment Opportunities. When countries increase their export, the must manufacture
goods, which will required more human power.
,6. Economic Development: Due to exports both the production and per capital income
increases which result in economic prosperity.
7. International Relations: It brings friendly relations with other countries, which can lead
to employment opportunities as well as educational scholarship and many more.
8. Transfer to Technology. With the development trade relations they can transfer improve
method, machinery for inventions and innovation.
9. World Peace. When countries involve in international trading, they want to keep friendly
relations with each other in order to increase the exports and engage the manpower in the rest
of the world which is a source of friend remittances.
Disadvantages of International Trade
1. Local Industry Suffers. When countries import goods or services from other counties.
They are ready to use and cheap prices and local industry cannot compete the quality or price,
living example is Chinese products.
2. Excessive Use Natural Resources. After involving in international trade market, countries
want to export in bulk quantity. They must produce goods in bulk which involve utilization of
natural resources.
3. Shortage in the Local Market. For capturing market share, countries involve to export
too much as a result they face shortage in the local market and notice hike in prices.
4. Unemployment. When the capitalists find that importing goods can give them more profit
then producing it in the local market, they prefer to import which lead to unemployment in
the local market.
5. Colonialism. Sometimes independent countries become colonies of other nations. Good
example is large corporations and mega-projects. Time comes when their whole economy is
controlled by corporate tycoons. They become so powerful that destabilize the countries
economically and politically.
6. Economic and Military War. Every country wants to lead in export and economic sound
position, which leads to become economic rivals. They want to destabilize other rivals by
terrorism, wars etc. Exporting military weapons, atomic weapons (aircrafts, missals, tanks,
automatic and semi atomic guns etc) is another example of international trade.
Need for International trade
1. Reduced dependence on your local market
Your home market may be struggling due to economic pressures, but if you go global.
2. Increased chances of success
Unless you have got your pricing wrong, the higher the volume of products you sell,
the more profit you make, and overseas trade is an obvious way to increase sales.
3. Increased efficiency
, Benefit from the economies of scale that the export of your goods can bring go global
and profitably use up any excess capacity in your business.
4. Increased productivity
Statistics from UK Trade and Investment (UKTI) state that companies involved in
overseas trade can improve their productivity by 34% imagine that, over a third more with no
increase in plant.
5. Economic advantage
Take advantage of currency fluctuations export when the value of the pound sterling
is low against other currencies, and reap the very real benefits.
6. Innovation
Because you are exporting to a wider range of customers, you will also gain a wider
range of feedback about your products, and this can lead to real benefits.
7. Growth
The holy grail for any business, and something that has been lacking for a long time in our
manufacturing industries – more overseas trade = increased growth opportunities, to benefit
both your business and our economy as a whole.
Types of International trade
International trade involves the exchange of goods, services, and capital across international
borders. It can be categorized into several types based on the nature of the trade. Trade can be
divided into following two types, viz.
1. Internal or Home or Domestic trade.
2. External or Foreign or International trade
1. Internal Trade:
Internal trade is also known as Home trade. It is conducted within the political and
geographical boundaries of a country. It can be at local level, regional level or national level.
Hence trade carried on among traders of Delhi, Mumbai, etc. is called home trade.
Internal trade can be further sub-divided into two groups, viz.
a) WholesaleTrade: It involves buying in large quantities from producers or manufacturers
and selling in lots to retailers for resale to consumers. The wholesaler is a link between
manufacturer and retailer. A wholesaler occupies prominent position since manufacturers as
well as retailers both are dependent upon him. Wholesaler act as an intermediary between
producers and retailers.
b) RetailTrade: It involves buying in smaller lots from the wholesalers and selling in very
small quantities to the consumers for personal use. The retailer is the last link in the chain of
distribution. He establishes a link between wholesalers and consumers. There are different
, types of retailers small as well as large. Small scale retailers includes hawkers, pedlars,
general shops, etc.
2. External Trade
External trade also called as foreign trade. It refers to buying and selling between two or
more countries. For instance, If Mr.X who is a trader from Mumbai, sells his goods to Mr.Y
another trader from New York then this is an example of foreign trade.
a. Export Trade
Export trade is the process of selling goods and services produced in one country to buyers in
another country. Exports are one of the components of international trade, along with
imports. Selling goods or services produced in one country to another. Example: The United
States exporting machinery to Germany.
b. Import Trade
An import trade takes place when a company in one nation purchases products or services
from a business in a foreign country. Every country imports something from other countries,
especially if it lacks the resources to manufacture it domestically. Another reason for import
trade is when the exporting country can produce the item at a lower cost or in better quality
than the importing country's domestic production. For instance, many countries import fuel as
they lack the resources to produce it locally. Buying goods or services from another country
for domestic consumption. Example: India importing crude oil from the Middle East.
c. Entrepôt Trade (Re-export Trade)
"Entrepôt trade," also known as "re-export trade," refers to a type of international trade where
a country imports goods from one nation and then exports them to another country without
significantly altering the product, essentially acting as a middleman to facilitate trade
between two other parties; it involves buying goods to immediately re-export them, often
with minimal processing or repackaging involved. Importing goods from one country,
making minor changes or repackaging, and then exporting them to another country. Example:
Singapore importing electronics, assembling them, and re-exporting to neighboring countries.
d. Bilateral Trade
Bilateral trade is the exchange of goods and services between two countries. It can also refer
to the borrowing or lending of capital between two countries. Trade agreements between two
countries to exchange goods and services. Example: A trade agreement between China and
Brazil for soybeans and electronics.
e. Multilateral Trade
Multilateral trade is trade between three or more countries. It involves agreements between
countries to reduce trade barriers and promote economic growth. Trade involving multiple
Unit I – International Trade
Introduction - Definition - Need – Types International Trade – Difference Between Internal
and International Trade – Importance of International Trade in Global Context.
Introduction
The term “trade” generally means exchange of goods among different individuals. If
such exchange of goods takes place between two individuals or firms of the same country.
Inter-regional trade refers to trade between regions within a country. It is what Ohlin calls
inter-local trade. Thus inter-regional trade is domestic or internal trade. International trade,
on the other hand, is trade between two nations or countries.
Meaning
International trade is the exchange of goods and services between countries. It's also known
as global trade.
Definition
• According to Wasserman and Haltman, “International trade consists of transaction
between residents of different countries”.
• According to Anatol Marad, “International trade is a trade between nations”.
• According to Eugeworth, “International trade means trade between nations”.
Advantages of International Trade
1. Better use of Resources. The producers try to control the cost by optimum combination of
factors of production. So there is no misuse of production factors.
2. Economies of Large Scale. The economies of production, transport, management, finance
and advertisement are available to the producers.
3. Cultural Diversity. The import and export of goods and services introduces the taste and
preference of one group of people to the rest of the world.
4. Monopoly. It eliminates monopoly, sometimes goods and services can be important and
surplus can be exported. In both cases the seller cannot create monopoly in the market.
5. Employment Opportunities. When countries increase their export, the must manufacture
goods, which will required more human power.
,6. Economic Development: Due to exports both the production and per capital income
increases which result in economic prosperity.
7. International Relations: It brings friendly relations with other countries, which can lead
to employment opportunities as well as educational scholarship and many more.
8. Transfer to Technology. With the development trade relations they can transfer improve
method, machinery for inventions and innovation.
9. World Peace. When countries involve in international trading, they want to keep friendly
relations with each other in order to increase the exports and engage the manpower in the rest
of the world which is a source of friend remittances.
Disadvantages of International Trade
1. Local Industry Suffers. When countries import goods or services from other counties.
They are ready to use and cheap prices and local industry cannot compete the quality or price,
living example is Chinese products.
2. Excessive Use Natural Resources. After involving in international trade market, countries
want to export in bulk quantity. They must produce goods in bulk which involve utilization of
natural resources.
3. Shortage in the Local Market. For capturing market share, countries involve to export
too much as a result they face shortage in the local market and notice hike in prices.
4. Unemployment. When the capitalists find that importing goods can give them more profit
then producing it in the local market, they prefer to import which lead to unemployment in
the local market.
5. Colonialism. Sometimes independent countries become colonies of other nations. Good
example is large corporations and mega-projects. Time comes when their whole economy is
controlled by corporate tycoons. They become so powerful that destabilize the countries
economically and politically.
6. Economic and Military War. Every country wants to lead in export and economic sound
position, which leads to become economic rivals. They want to destabilize other rivals by
terrorism, wars etc. Exporting military weapons, atomic weapons (aircrafts, missals, tanks,
automatic and semi atomic guns etc) is another example of international trade.
Need for International trade
1. Reduced dependence on your local market
Your home market may be struggling due to economic pressures, but if you go global.
2. Increased chances of success
Unless you have got your pricing wrong, the higher the volume of products you sell,
the more profit you make, and overseas trade is an obvious way to increase sales.
3. Increased efficiency
, Benefit from the economies of scale that the export of your goods can bring go global
and profitably use up any excess capacity in your business.
4. Increased productivity
Statistics from UK Trade and Investment (UKTI) state that companies involved in
overseas trade can improve their productivity by 34% imagine that, over a third more with no
increase in plant.
5. Economic advantage
Take advantage of currency fluctuations export when the value of the pound sterling
is low against other currencies, and reap the very real benefits.
6. Innovation
Because you are exporting to a wider range of customers, you will also gain a wider
range of feedback about your products, and this can lead to real benefits.
7. Growth
The holy grail for any business, and something that has been lacking for a long time in our
manufacturing industries – more overseas trade = increased growth opportunities, to benefit
both your business and our economy as a whole.
Types of International trade
International trade involves the exchange of goods, services, and capital across international
borders. It can be categorized into several types based on the nature of the trade. Trade can be
divided into following two types, viz.
1. Internal or Home or Domestic trade.
2. External or Foreign or International trade
1. Internal Trade:
Internal trade is also known as Home trade. It is conducted within the political and
geographical boundaries of a country. It can be at local level, regional level or national level.
Hence trade carried on among traders of Delhi, Mumbai, etc. is called home trade.
Internal trade can be further sub-divided into two groups, viz.
a) WholesaleTrade: It involves buying in large quantities from producers or manufacturers
and selling in lots to retailers for resale to consumers. The wholesaler is a link between
manufacturer and retailer. A wholesaler occupies prominent position since manufacturers as
well as retailers both are dependent upon him. Wholesaler act as an intermediary between
producers and retailers.
b) RetailTrade: It involves buying in smaller lots from the wholesalers and selling in very
small quantities to the consumers for personal use. The retailer is the last link in the chain of
distribution. He establishes a link between wholesalers and consumers. There are different
, types of retailers small as well as large. Small scale retailers includes hawkers, pedlars,
general shops, etc.
2. External Trade
External trade also called as foreign trade. It refers to buying and selling between two or
more countries. For instance, If Mr.X who is a trader from Mumbai, sells his goods to Mr.Y
another trader from New York then this is an example of foreign trade.
a. Export Trade
Export trade is the process of selling goods and services produced in one country to buyers in
another country. Exports are one of the components of international trade, along with
imports. Selling goods or services produced in one country to another. Example: The United
States exporting machinery to Germany.
b. Import Trade
An import trade takes place when a company in one nation purchases products or services
from a business in a foreign country. Every country imports something from other countries,
especially if it lacks the resources to manufacture it domestically. Another reason for import
trade is when the exporting country can produce the item at a lower cost or in better quality
than the importing country's domestic production. For instance, many countries import fuel as
they lack the resources to produce it locally. Buying goods or services from another country
for domestic consumption. Example: India importing crude oil from the Middle East.
c. Entrepôt Trade (Re-export Trade)
"Entrepôt trade," also known as "re-export trade," refers to a type of international trade where
a country imports goods from one nation and then exports them to another country without
significantly altering the product, essentially acting as a middleman to facilitate trade
between two other parties; it involves buying goods to immediately re-export them, often
with minimal processing or repackaging involved. Importing goods from one country,
making minor changes or repackaging, and then exporting them to another country. Example:
Singapore importing electronics, assembling them, and re-exporting to neighboring countries.
d. Bilateral Trade
Bilateral trade is the exchange of goods and services between two countries. It can also refer
to the borrowing or lending of capital between two countries. Trade agreements between two
countries to exchange goods and services. Example: A trade agreement between China and
Brazil for soybeans and electronics.
e. Multilateral Trade
Multilateral trade is trade between three or more countries. It involves agreements between
countries to reduce trade barriers and promote economic growth. Trade involving multiple
