INTERNATIONAL TRADE

Business studies study module

A trade involving the exchange of goods and services between two or more countries. If the exchange is between two countries only, then it is referred to as bilateral trade, but if it is between more than two countries then it is referred to as multilateral trade.

Advantages of International Trade

  • It enable the country to get access to wider range/variety of goods and services from other countries
  • It enable the country to get what it does not produce
  • It helps in promoting peace among the trading countries
  • It enable the country to specialize in its production activities where they feel they have an advantage
  • It earns the country revenue through taxes and licenses fees paid the importers and exporters in the country
  • It enable the country to dispose of its surplus goods and services thereavoiding wastage
  • It creates employment opportunities to the citizens of that country either directly or indirectly
  • It may lead to the development of the country through importation of capital goods in to the country
  • It encourages easy movement of factors of production across the borders of the countries involved
  • It enable countries to earn foreign exchange which it can use to pay for its imports
  • A country may be able to obtain goods and services cheaply than if they have been produced locally
  • During hard times or calamities such as wars, the country is able to get assistance from the trading partners
  • It brings about competition between the imported and locally produced goods, leading to improvement in their quality
  • It gives the country an opportunity to exploit fully its natural resources, due to increased market

Disadvantages of International trade

  • It may lead to collapse of the local industries, as people will tend to go for the imported goods. The collapse may also lead to loss of employment
  • It may also lead to importation of harmful foods and services such as drugs and pornographic materials
  • May lead to over depending on imported commodities especially the essential ones, making the country to be a slave of the other countries, interfering with their sovereignty
  • It may make the country to suffered during emergencies if they mainly rely on the imported goods
  • May make the country to suffer from import inflation
  • May lead to acquisition of bad culture from other countries as a result of their interactions
  • May lead to unfavorable balance of payment, if the import is higher than exports



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