International Trade: Commerce between countries all over the World
It is generally believed that international trade is done to make people better off. It is an important concept in economics, as it is believed that international trade is conducted to either achieve the absolute or comparative advantage of producing goods. One nation may have the capability to produce more goods and be more productive in producing all goods by utilizing fewer resources (including labor and capital) as compared to other nations. Therefore, countries engage in trade through imports and exports with each other. Countries with an absolute or comparative advantage in producing goods may export it to other nations. While a country may import those goods in which it has a relatively less absolute advantage. Read the research paper idea further:
Suppose a nation is twice as productive in producing clothes as its trading partner but is three times as productive in producing steel as compared to the trading nation. In that case, the country can gain benefits by producing and exporting steel and importing clothes. Considering this comparative advantage, it can be said that international trade improves both countries’ living standards. It can be considered as a source of economic development.
Recent research has shown that international trade results in increased competition from international firms. It forces less efficient firms out of the market, and only more efficient firms are able to survive the cutthroat competition in the market. Furthermore, due to firms’ expansion and new entry, better technology is used, and consumers are available with new products of better quality.
Thus, there is clear evidence that with firms becoming more efficient due to increased competition from international trade, there are not only more products in the market but also a greater variety of products. Another advantage gained from international trade is increased investment as firms are able to access the greater quality of capital inputs for production.
Therefore, as a result of international trade, there is more investment and innovation in the economy, which eventually leads to higher sustainable growth in the country. There is a transfer of technology between countries with the expansion of product variety. Thus, it can be said that countries can be benefited from international trade by reducing trade barriers such as tariffs and other non-tariff barriers to trade.
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