Siddharth Watve (30 August 1997 – 06 May 2021)
Siddharth was pursuing the M.A in Diplomacy, Law and Business programme (2020-2022) of Jindal School of International Affairs, O. P Jindal Global University, Sonipat, Haryana
As a phenomenon of exchange, International Trade enables nations to expand their market to allow for availability of good and services that would otherwise be attainable on domestic grounds. This, in turn, leads to more cutthroat pricing and allows for cheaper commodities for consumers. International trading provides nations and consumers with the prospect of having access to services and goods unavailable in their nations or more costly domestically. Political economists such as David Ricardo and Adam Smith have identified foreign trade’s importance to benefit economies. Still, there are arguments that regard international trade as being unsuitable for smaller countries, on accounts that it might position them at a considerable disadvantage against the more developed countries on the global platform. International Trade, however, does lead to increased opportunities for these nations and allows them to be a part of the international economy, boosting their foreign direct investment prospects. Hence, economies can develop more proficiently and can effortlessly become aggressive economic partners on the international platform. In case of the receiving regime, it is a medium via which international currency inflates and proficiency can come into the nation. It also increases the levels of employment and enables growth in Gross Domestic Product. In the investors’ case, Foreign Direct Investment offers extension of company and development that indicates more significant proceeds. This research paper focuses on the important tactics through which international trade aids in economic development and highlights subsequent trading styles. It further highlights positive outcomes of international trade and how it contributes to economic enhancement. Lastly, the paper illustrates the pros of international trade as a tool in accelerating the economic development process and its drawbacks for the nations.
Keywords: Foreign Trade, Foreign Direct Investment, Gross Domestic Product, Competitive Pricing
International commerce broadens the marketplace for the output of the nation. The enhanced national outcome may act as a locomotive of growth arising due to exports. Escalation of a nation’s international commerce stands to stimulate an otherwise sluggish economy and might lead it towards the path of economic growth and opulence.
Elevated international stipulation might set in motion massive fabrications and small unit costs of economies of scale. An increase in export results in more extensive deployment of obtainable skills and resources resulting in cost reduction, which would, in turn, result in enhancement of exports. Inflating exports will lead to an increase in employment opportunities. The leeway of elevating exports reveals the core speculation in a specific nation which lends a hand in economic intensification.
Some of the vital approaches via which international trade adds to economic development are:
- One of the crucial concerns of international trade and commerce is discovering mediums for attaining trade in capital goods, without which the development process cannot be initiated.
- International trade bestows technological flow that enables elevation inefficiency resulting in a quick fix multiplier upshot.
- International trading exerts force for vigorous change via:
- Cutthroat trade pressure exerted via trade-in
- Force of contending export market
- Improved allotment of resources
- Exports permit fuller consumption of capabilities leading to:
- the accomplishment of economies of scale
- splits pattern of fabrication from a domestic stipulation
- increases acquaintance via the incorporation of emerging technological trends.
- International Trade enhances the wellbeing of most employees via following ways:
- Hefty exports decipher into lofty remunerations
- Since employees are also consumers, trade enables rapid growth via trade-in products for them.
- It facilitates employees to become more industrious as the commodities produced by them amplify in value.
- It leads to higher stipulation for more skilled labour in beneficiary nations arising due to the transfer of technology from industrial to mounting nations.
- Enhanced openness to commerce is associated with reduction in Poverty in most mounting nations.
Hence, it can be said that international trade encourages welfare of economies by motivating more resourceful deployment of factor inheritance of various regions by facilitating people to acquire goods from proficient supply sources.
Favourable Outcomes of International Trade Contributing to Economic Development
Foreign trade facilitates a nation to enjoy the benefits of specialism according to comparative costs. By way of such a practice, every nation specialises and exports the products it produces at lower rates in exchange of products and resources other nations provide at lower costs on their end.
Amplification of Market and Increasing Yield
International trade by enhancing market extent and labour division scope enables a trading nation to enjoy economic growth via enhanced machinery utilization, triumph over technically subtle elements and stimulating innovations. This results in benefits of inner and outer economies of scale.
Helpful for High Growth Potential
International trade enables the nation’s growth by facilitating it to swap over domestic commodities for international commodities with more significant development prospective. It enables more potential for development by speeding up the development resulting from given endeavour on cutback surfaces. It grants prospects for importing capital commodities and materials required for development. Trade-in of medicines, tools of generating power, pieces of equipment of transportation, chemicals, vehicles, and other commodities with more considerable growth potential enables enormous assistance to developing nations.
Consequence of Trade
One of the biggest hindrances in developing a nation is the scarcity of knowledge that can be efficiently eliminated by way of increasing contact with the advanced nations through international trade enhancement. According to J. S. Mill, trade benefits the less developed country through ‘the introduction of foreign arts, which raise the returns derivable from additional capital to a rate corresponding to the low strength of the desire of accumulation’.
Hence, international trade can have significant sway on the populace of developing nations and can, in turn, aid in initiating an industrial and technological revolution.
International trade aids in elevating formation of capital. The capability to save rises as there is an increase in real income via more effective allotment of resources associated to foreign trade. International trade also offers incentives for speculation and tends to increase the rate of formation of capital. These incentives arise from the probability of apprehending elevating returns in spacious markets provided by international trade. By agreeing to total production, the admittance to international markets makes it lucrative to adopt evolving production techniques.
Basis of Trade in International Capital
Foreign trade aids in elevating development via generation of a suitable environment for a trade-in of international capital. Trade is a means of transportation for international capital from industrial to underdeveloped nations. The greater the nation’s business volume, the more considerable international capital is accessible to it.
International trade assists in economic growth by providing vigorous antagonism and checking for unproductive monopolies. If an economy is more vigorous, it will be more efficient as well.
International trade promotes an underdeveloped nation via promoting active antagonism, which is essential for enhancing export segment of such nations and scrutinizing scarce monopolies usually created based on newly born industry fortification.
International Trade Aids in Infringement of Ferocious Loop of Poverty
The underdeveloped nations are typified by the ferocious loop of scarcity. It indicates a lack of income, lack of demand and dearth of stipulation accounts for a short supply that results in stumpy revenues. However, foreign trade facilitates the underdeveloped nations to generate many such goods which enable immense competitive advantage. Revenues, employment, and production in such nations lead to an elevation in demand. This elevated demand is moderately fulfilled via domestic production and partially via international import-in. Hence, import-in and exports of numerous commodities facilitate rupturing of the loop of scarcity and Poverty, which automatically accelerates economic expansion.
Advantages of International Trade for Economic Enhancement
- Competent consumption of resources
- The multiplicity of consumption goods
- Enhancement of Fabrication Efficiency
- Utilisation of superfluous construct
- Utilization at despicable cost
- Lessens trade vacillation
Drawbacks of International Trade for Economic Enhancement
- Developing nations might resist contending on an international platform for various reasons irrespective of the new opportunities presented by way of foreign trade and globalization.
- Disorganized transportation system or customs.
- Pitiable association in telecommunication, information technology or financial markets.
- Intricate dogmatic environments that deject new- fangled investments.
- Unwilling aggressive behaviour of major market players or alliances that asphyxiate innovation, market enhancement or productivity.
Aspects of Foreign Trade on Economic Growth
The sluggish velocity of crucial commodities:
The prime impenetrability that approaches international trade is an intensification of crucial commodities that outline chief exports of flourishing nations have been quite dawdling compared to the global trade.
Reduced amount of contribution to global trade:
It is observed that exports of flourishing nations have been sluggish. Consequently, the contribution of flourishing economies in total global trade has retained a descending trend.
Shoddier requisites of trade:
In flourishing markets, the sluggish stipulation for crucial commodities has generated a poor balance of payment in developing nations. While fabricated goods have been aloft in terms of the global open market trend, crucial commodities’ costs are progressively demonstrating a downward trend.
Restraining guidelines of trade:
Restraining trade strategies taken up by the industrial nations affect the outlook for flourishing nation exports of fabricators. Due to the actuality that for flourishing nation markets in the industrial economies have progressively become more crucial.
Factors influencing international trade development
The consequence of an increase in pricing
If a nation’s inflation rate increases compared to the nations with which it conducts business, its existing account will be estimated to decline, while other fixations are constant. Buyers and corporations in that nation will more likely procure more commodities overseas (because of high local prices), while the nation’s exports to other nations will decrease.
The consequence of National Proceeds
If a more significant percentage raises a nation’s national income compared to the other nations, its existing account is anticipated to decline, other fixations being equal. As the real level of income increases, the consumption of goods also increases. A percentage of this rise in consumption level will more likely indicate higher demand for international goods.
The Consequence of Policies of Government
A nation can encompass significant consequence on its balance of trade because of its policies on financially supporting exporters, constraints on trade-in, or shortage of imposition on piracy.
International trade acts as a catalyst in terms of economic development of nations. It enables the development of business and liquefies dominant entities, hence escalating competition. The Ebb and flow of costs of products can be established by discerning international trade. Inculcating international capital aids in the expansion of the employment segment, it also helps to heave investment levels and income in the host nation. Discounts, international exchange, international trade and technology are crucial for economic enhancement as it helps to fill the technological , savings and trade gaps. International investment facilitates in elevating government proceeds outlined as corporate taxes. It also aids in diminishing trade discrepancy by elevating exports and decline in trade-ins. International trade is regarded as a vital element in determining rapport between nations. Amiable rapport helps to encourage trade relations and aids in accomplishing economic assimilation and political tranquillity.
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The opinions expressed in this article are those of the author (s). They do not purport to reflect the opinions or views of the Jindal Centre for the Global South or its members.