In our world today, nothing can be done without an exchange of
some value for value, which involves money, ideas, product and technology.
Because of this there is direct effect on the economy of any nation, either
positively or negatively. Trade can be traced back to the need for exchange,
which evolved from the barter system to the money system. Trade in Africa,
however, became popular with the advent of the colonial rule that brought in
their wares and made Africans their intermediaries. By this, Africans
understood the need for trade both domestically and internationally.
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
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.
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