International trade can be seen as
exchange of goods and services that exists between two or more countries of the
world. International trade occurs due to differences in natural resources
endowments, technology, demand, existence of economics of scale in production,
financial capital and existence of government policies etc.
International trade has been an area
of concern to policy makers and economists. Its importance lies on the ability
to obtain goods which cannot be produced in the country or which can only be
produced at greater expenses. In addition, it enables a nation to sell its
domestically produced goods to other countries of the world. The performance of
a given economy in terms of growth rates of output and per capital income has
not only been based on the domestic production and consumption activities but
also on international transaction of goods and services. The classical and
Neo-classical economists attached so much importance to international trade in
a country’s development that they regarded it as an engine of growth
Trade is a vital catalyst for
economic development most especially for developing countries like Nigeria, the
contribution of trade to overall economic development is immense owing largely
to the obvious fact that most of the essential elements for development such
as, capital goods, raw materials and technical expertise, are mostly imported
because of inadequate domestic supply. However, it is important to note that
internal trade complements external trade since domestically produced goods are
collected for export, while imported goods are distributed within the country,
sometimes into remote areas. It also facilitates internal specialization and
the division of labour between the various firms and geographical areas of the
country. Therefore, the higher the level of internal trade the greater the
level of specialization. This raises the level of efficiency and productivity
of the various economic units.
Benefits for International
Trade.........
 | ||||
|
Foreign Trade helps in Breaking
Vicious Circle of Poverty:
The underdeveloped countries are
characterized by the existence of vicious circle of poverty. It implies, low
income, deficiency of demand and lack of demand accounts for low supply, which
in turn accounts for low income. However, international trade enables
underdeveloped countries to produce more of those goods in which they enjoy
greater comparative advantage.
Consequently, production, income and
employment in these countries increase leading to increase in demand. This
increase demand is partially met by domestic production and partially by
foreign imports. In this way, exports and imports of various products help in
breaking the vicious circle of poverty. Thus, it accelerates the rate of
economic development automatically in the economy.
Efficient Use of Means of
Production:
International trade, it is felt,
provides better ground for efficient use of various resources due to its
comparative advantages. According to an expert, it adds to the efficiency of
production. In underdeveloped economies, agriculture is backward and
subsistence farming is the rule.
With the development of trade, use
of latest and improved techniques of production becomes possible in agriculture
as well in industrial sector.
This, in turn helps to increase, the
efficiency of means of production. The commercialization of agriculture becomes
possible. Similarly, many new industries come into being and some of them are
meant for the production of export goods only. Therefore, efficient use of
means of production leads to all-round development of the economy.
Widening of Market and Raising
Productivity:
It is argued that the productivity
gains arising out of extension of market is a consequence of international
trade. Improvements in productivity result from greater division of labour, a
higher degree of mechanization and greater possibility of innovation. It is
said that foreign trade, by widening the extent of the market and the scope of
the division of labour, permits a greater use of machinery, stimulates
innovations, overcomes technical indivisibility, raises the productivity of
labour, and generally enables the trading country to enjoy increasing returns
and economic development. An expert has categorized them as indirect dynamic
benefits arising out of international trade.
Thus international trade, by
extending the size of the market, exercises a dynamic influence on the economy.
In turn, it helps to raise the production at higher trade. As a result, country
enjoys the benefits of external and internal economies of scale.
Specialization:
International trade enables a
country to enjoy the advantages of international specialization according to
comparative costs. Every country specializes and exports those
commodities, which it can produce cheaper in exchange for what others can
provide at a lower cost.
When a country specializes according
to its comparative advantage, it gains an increase in real income and
consequent rise in the standard of living of its people. An expert emphasized
this aspect of international trade and maintained that trade according to
comparative advantage, results in a ‘more efficient employment of productive
forces of the world’ and this may be considered as the ‘direct economic
advantage of international trade’.
Therefore, international trade by
enabling better and more efficient utilization of the resources of a country
increases its real national income and hence has a growth-promoting effect.
Helpful for High Growth Potential:
International trade can also help in
the development of a country enabling it to exchange domestic goods saving low
growth potential for foreign goods with high growth potential.
A school of thought emphasizing this
growth promoting aspect of international trade observes that trade offers an
opportunity for the exchange of goods with less growth potential for goods with
more growth potential, thereby quickening the progress that results from a
given effort on the saving sides.
It provides an opportunity for
importing capital goods and materials required for development purposes. The
import of machinery, transport equipment, vehicles, power generation equipment,
road-building machinery, medicines, chemicals and other goods with high growth
potential provides greater benefits to the developing countries.
|
|
 | |
|
It is maintained that international
trade can serve as a vehicle for the dissemination of technological knowledge.
A deficiency of knowledge can be a biggest handicap in the development of a
country and this deficiency can be effectively removed through contact with
more advanced economies i.e. by making possible through foreign trade.
The technical expertise and skills
is an indispensable source of technological progress, and the importation of
ideas in general is a potent stimulus to development. According to an expert,
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’. Thus,
international trade can have an educative influence on the people of developing
countries and can thus help in bringing about technological and industrial
revolution.
Capital Formation:
It is said that international trade
helps to increase capital formation. The capacity to save increases as real
income rises through the more efficient resource allocation associated with
international trade. Foreign trade also provides stimulus for investment and
thus it tends to raise the rate of capital formation.
This stimulus comes from the
possibility of realizing increasing returns in wider markets that foreign trade
provides. Moreover, by allowing economies of large-scale production, the access
to foreign markets makes it profitable to adopt more advanced techniques of
production.
Thus international trade, by
creating conditions for increased capital formation in underdeveloped
countries, can help in their economic development.
Basis of Import of Foreign Capital:
International trade also helps in promoting
development by creating suitable conditions for the import of foreign capital.
A school of thought argued that trade is a vehicle for the international
movement of capital from the developed to the underdeveloped countries.
The amount of capital that an
underdeveloped country can obtain from foreign countries depends to a
considerable extent on the volume of its trade. The larger the volume of trade
of a country, the greater will be the volume of foreign capital that can be
expected to become available to it.
It is an established fact that it is
much easier to get foreign capital for export industries because they have a
built-in solution of the transfer problem.
Healthy Competition:
International trade also helps in
economic development by providing healthy competition and keeping in check
inefficient monopolies. The more competitive an economy is, the more efficient
it will be.
The foreign trade benefits an
underdeveloped country indirectly by encouraging healthy competition and
checking inefficient monopolies. Healthy, competition is essential for the
development of the export sector of such economies and for checking inefficient
exploitative monopolies that are usually established on the grounds of infant
industry protection.
Similarly, an expert opines,
“international trade accelerates the rate of economic development of
underdeveloped countries.”
They get opportunities for improved
techniques. There is expansion in the size of market. Domestic and foreign
goods are easily available. Income, output and employment of the country
increases. The countries such as Singapore, Arab countries, Brazil, Malaya,
Japan, Korea, Taiwan, Hong Kong, etc. get tremendous progress due to
international trade.
Efficient Use of Means of Production:
International trade, it is felt,
provides better ground for efficient use of various resources due to its
comparative advantages. According to an expert, it adds to the efficiency of
production. In underdeveloped economies, agriculture is backward and
subsistence farming is the rule.
With the development of trade, use
of latest and improved techniques of production becomes possible in agriculture
as well in industrial sector.
This, in turn helps to increase, the
efficiency of means of production. The commercialization of agriculture becomes
possible. Similarly, many new industries come into being and some of them are
meant for the production of export goods only. Therefore, efficient use of
means of production leads to all-round development of the economy.
Import of Capital Goods & Export
of Primary Goods:
Another direct advantage of international trade for the economic development of underdeveloped countries is that these countries can industrialize themselves by importing necessary capital goods like machinery, semi-finished products and industrial raw materials from industrialized developed countries.
In return, these countries can
export primary goods and mineral resources and thus solve the problem of
balance of payments. In this way, import of capital goods and export of primary
goods are possible under international trade.
The topic : Trade Nigeria: Positive Effect of International Trade on a Growing Nation, is brought to you by National Mail
National Mail is
an online news platform of Trade Nigeria that focuses on business development,
Investment, trade, economic exchange and development.
Follow National Mail on twitter, LinkedIn, and
Nairaland for your one stop news update!
For more views, observations or Inquiries,
kindly visit our website; www.tradenigeria.org
OR:
Rivers
State : No
6 Omerelu Street, GRA phase 1 Port Harcourt.
Trade Nigeria
Grow * Connect * Expand
No comments:
Post a Comment