Trade is the exchange of goods and services. Trade can be classified into domestic trade and international trade. Exchange of goods and services within a country is known as domestic trade. Exchanges of goods and services along the international borders are known as international trade. For example, if a cloth made in Kathmandu is sold to Pokhara. then it is called domestic trade but, if the same cloth is sold out of the country to like India, China, then it is called international trade.
According to Luckett, "The purchase of goods and services by the citizens of one country from the citizens of another country is the international trade."
According to Harrod,"International trade consists largely of interchange of goods between producers who enjoy similar standards. International trade often consists of the interchange of goods between producers enjoying widely different standards."
In each and every country, production of each and every goods and service is not possible. To fulfill all the needs of humans without an international trade is impossible. In other words, without international trade, there would be limited goods and services in a nation produced within borders.
International trade is the most important factor for economic development. There are a lot of benefits of international trade. Some of the importance or advantages of internationa trade are as follows:
International trade is one of the big platforms for the employment opportunities. It provides direct employment opportunities to the people for theimports and exports of the goods and services.
Needs of human are unlimited and it increases day by day. But all needs cannot be fulfilled within the country's production. In such case, international trade plays a vital role in the availability of needed goods and services within a country.
Geographical specialization improves the productivity and quality of goods and services which lead to lower cost of production.
International trade helps the utilization of optimum resources. Every resources are not available in all nation. So, all production is not possible. Therefore, international trade helps in the utilizing such resources. (Khanal, Khatiwada, and Thapa)
International trade stabilizes the prices. It helps to keep the demand and supply position stable, which in turn helps to stabilize the prices, making allowances for transport and other marketing expenses.
International trade helps in providing multiple choices in the market. It helps in making available all the varieties of goods and services tothe consumers in all nations of the world.
Imports and exports help in the economic development of a country. This is because, with the import of capital goods and technology, a country can generate growth in all sectors of the economy, i.e. agriculture, industry, and service sector.
International trade makes a good relation among the nation. It provides the service of technology and other assistance from developed countries to developing countries. It brings the nation closer due to economic relations arising out of trade agreements. International trade creates a friendly environment. Thus, it promotes world peace as such countries try to maintain friendly relations among themselves.
People can raise their living standard with international trade. International trade imports the new and better varieties of goods and services. By consuming such new and better varieties of goods, people can improve their standard of living.
During natural calamities such as earthquakes, floods, landslides, etc., the affected countries face the problem of shortage of essential goods. International trade helps that country by importing food grains and medicines from other countries to help the affected people.
Even though there are a lot of advantages of international trade, there is still some portion of defect that may arise. Some of its disadvantages are as follows:
Underdeveloped country highly lacks technology and quality. In such situation, the infant industries of the country cannot compete with the products of developed country. As a result, they lose heir demand even in the domestic market and the company may collapse.
Foreign trade may lead to exports and imports of harmful goods. Such as imports of alcohol, tobacco, drugs, etc. Such imports are not good for health. It ruins health and wealth of living being.
International trade may lead to environment degradation by the over utilization of natural resources. The multinational company tries to use natural resources irrationally which results in environmental degradation.
People think that the lifestyle in the developed country is more effective than that of developing country. So, the people of developing country try to copy the lifestyle of the people of dveloped country. As a result, there may be the loss of own cultural identity in developing country.
Political instability is the likelihood of having demonstrations, forms of violence, workers going on strike, etc. Foreign trade may lead to political instability between countries that are a competitor.
The balance of Payments / Balance of trade means the summary of exports and imports of goods and services of a country with other countries. It includes just the transaction of visible exports and imports of goods and services during a particular period of time. If the amount of the export of a nation exceeds the amount of imports of goods and services, it is called surplus or favourable of trade. If the amount of import of the country exceeds the amount of exports of goods and services, it is known as a deficit or unfavorable balance of trade.
The balance of payments or accounts is a broad term and it refers to a complete record of economic transactions of a country with other countries during a given period of time. In this record, we include not only the value of commodity exported and imported (visible items) but also other invisible items are included. If the income from abroad exceeds the payments, it is called favorable or surplus balance of payments. If a number of payments made abroad exceed the amount of income earned from a foreign country, it is called unfavorable or deficit balance of payments.
Balance of Trade (BOT)
Balance of Payments (BOP)
It is the summary of a total volume of exports and imports of a visible item of a country with rest of the world in a year.
It is the comprehensive record of the country with rest of the world in a year.
It deals with only transactions of visible or material goods.
It deals with transactions of visible goods and invisible items like- services
It is a partial study of total economic transactions of a nation and thus, cannot show the economic performance of a nation.
It is a broad study of a total economic transaction of a nation. So, it reflects the real economic performance of a nation.
Unfavorable BOT can be recovered from favorable BOP.
Unfavorable BOP cannot be recovered from favorable BOT.
It is a narrow concept of international trade.
It is a broad concept of international trade.
(Khanal, Khatiwada, and Thapa) (Karna, Khanal, and Chaulagain)
Khanal, Dr. Rajesh Keshar, et al. Economics II. Kathmandu: Januka Publication Pvt. Ltd., 2013.
Karna, Dr.Surendra Labh, Bhawani Prasad Khanal and Neelam Prasad Chaulagain. Economics. Kathmandu: Jupiter Publisher and Distributors Pvt. Ltd, 2070.
Akrani, Gaurav. Kalyan city life. 03 02 201. 23 06 2016 <http://kalyan-city.blogspot.com/2011/03/what-is-foreign-trade-types-and.html>.
Advantages of international trade
Disadvantages of international trade