HOLISTIC EFFECT OF INTERNATIONAL
TRADE ON DEVELOPING NATION
.................courtesy of Globe chamber of commerce
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 capita income has not only been based on the domestic production
and consumption activities but also on international transaction of good 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.........
|
An
international business program......courtesy of Trade Nigeria in partnership with Globe Chamber of Commerce. |
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.
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Educative
Effect of Trade:
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: Holistic effect of International Trade on Developing Nation is brought to you by National Mail.
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