International trade is the exchange of goods and services between countries. It allows countries to specialize in what they can produce at a lower cost based on their resources and advantages. According to the theory of absolute advantage, if one country can produce a good at a lower absolute cost than another country, then both countries benefit from trade. The document discusses the types, characteristics, benefits, barriers, and theories of international trade.
2. S. N0. CONTENT SLIDE No.
1. Introduction 03
2. Classifications of International Trade 04
3. Types of International Trade 05
4. Characteristics of International Trade 06
5. Role or Importance of International Trade 07
6. Benefits of International Trade 08
7. Barriers to International Trade 09
8. Reasons for International Trade 10
9. Problems & Challenges of International Trade 11
10. Advantages of International Trade 12
11. Disadvantages of International Trade 13
12. Theory of Absolute Advantage 14-15
13. Conclusion 16
14. Reference 17
3. Trade between two or more countries is called foreign trade
or international trade. This involves the exchange of goods
and services between the citizens of two countries. When
citizens of one country exchange goods and services with the
citizens of another country, it is called foreign trade.
“The aim of international trade is to increase production and
to raise the standard of living of the people. International
trade helps citizens of one nation to consume and enjoy the
possession of goods produced in some other nation.”
4. 1. Import Trade: The inflow of goods in a country is called
import trade.
2. Export Trade: The outflow of goods from a country is called
export trade.
3. Entrepot Trade: Many times goods are imported for the
purpose of re-export after some processing operations. This
is called entrepot trade.
International trade must be classified into three ways:
5. There are four types of international trade transactions:
1. Direct Business: In direct business the importer places order
with manufacturer of the exporting country.
2. Consignment Business: Under consignment business the
exporter sends the goods to an agent in the importing country.
3. Indent Firms: The indent firms charge a commission for their
services. The indent firms are also called commission agents.
4. Merchant Shippers: This is a class of businessmen who buy
goods on their own account and sell them in a foreign country at
a profit.
6. Territorial specialization
International competition
Separation of sellers from buyers
Long chain of middlemen
International rules and regulations
Mutually acceptable currency
Government control
Several documents
International trade is characterized by the following features:
7. Division of labor and specialization
Optimum allocation and utilization of resources
Raises Standard of Living of the people
Generate employment opportunities
Equality of prices
Ensures quality and standard goods
Facilitate economic development
To improve quality of local products
Availability of multiple choices
The Role and importance of international trade are as follows:
8. There are some benefits of international trade:
Efficient Allocation and Better Utilization of Resources
Variety of Goods Available for Consumption
Promotes Efficiency in Production
Utilization of Surplus Produce
Consumption at Cheaper Cost
More Employment
Reduces Trade Fluctuations
9. There are some barriers to international trade:
Cultural and social barriers
Political barriers
Tariffs and trade restrictions
Standards
Boycotts
Anti-dumping Penalties
Monetary Barriers
10. Here are seven reasons for growing globally:
Reduced dependence on your local market
Increased chances of success
Increased efficiency
Increased productivity
Economic advantage
Innovation
Growth
11. The following are the special problems of international trade:
Distance
Different languages
Risk in transit
Intense competition
Difficulties in Payments
Import and Export Restrictions
Transport and Communications
Lack of information about International Traders
12. The main advantages of international trade are as follows:
Optimal use of natural resources
Availability of all types of goods:
Advantages of large-scale production
Stability in prices
Increase in efficiency
Promotes Competition
Fall of Prices
Speedy Industrialization
13. The main disadvantages of international trade are as follows:
Exhaustion of Resources
Effect on Domestic Industries
Effect on Consumption Habits
Times of Emergency
Economic Dependence
Political Dependence
Import of Harmful Goods
Mis-utilisation of Natural Resources
14. According to Adam Smith. if one country has absolute
advantage over another in one line of product on and the
other country has an absolute advantage over the first
country in another line of production. then both
countries would gain by trading.
Absolute advantage is the ability of a country, individual,
company or region to produce a good or service at a
lower cost per unit than the cost at which any other entity
produces that same good or service.
15. According to him, there are following advantages of this theory.
1. Absolute Cost Advantage: Trade between two countries
would be mutually beneficial if the cost of producing a
commodity in one country is lesser than the cost of
producing the same commodity in another country.
2. Natural Advantage: A country would produce those goods
that are naturally favoring its climatic conditions. The type
of goods produced would also depend upon the availability
of natural resources.
3. Acquired Advantage: This would include advantage in
technology and level of skill development.
16. In conclusion it can be said that, international trade leads to
economic growth provided the policy measures & economic
infrastructure are accommodative enough to cope with the
changes in social and financial scenario that result from it.
In order to face the cross border competition challenges, a
well functioning, national competition regime is insufficient.
International trade opens up the opportunity for develop
countries whereby it increases their capacity to produce and
acquire goods. It should however be controlled so as to avoid
the closure of some local companies.