Foreign Trade :-If an exchange of goods or services takes place between the citizens of the same country, it is called domestic trade.
When the goods and services are exchanged between the buyers and sellers of the two countries, it is called foreign trade.
CAUSES OF FOREIGN TRADE :-
Following are the important causes of foreign trade :
1. Monopoly :-
If a country is enjoying a monopoly in the production of a certain commodity. Then other countries have to import that commodity. For example Bangladesh have a monopoly in producing the jute so other countries are helpless to import jute where it is not produced.
2. Mutual Advantage :-
When there is a mutual advantage of two countries in importing and exporting the goods then foreign trade takes place.
3. Difference in Natural resources :-
Different countries differ in natural resources. They have comparative advantage in producing a particular commodity. So they export that commodity and import the others according to their requirements. In this way international trade takes place.
4. Difference in Cost :-
When in any country if a particular commodity can be produced on lower cost as compared to the other countries then interaction trade takes place.
ADVANTAGES OF FOREIGN TRADE :-
Foreign trade plays very important role in the economic development of any country. All the countries in the world also exports a lot of product to other countries and imports the capital goods from other countries. The role of foreign trade can be judged by the following facts :
1. Market Expands :-
The demand factor plays very important role in increasing the production of any country. The foreign trade expands the market and encourages the producers. In South Asian countries home market is very limited due to poverty. So it is necessary that we should sell our product in other countries.
2. Increase in Investment :-
Foreign trade encourages the investor to increase the investment to produce more goods. So the rate of investment increases.
3. Removal of Monopolies :-
Foreign trade also discourages the monopolies. Whenever any monopolist increases the prices. Government allows the imports of goods to reduce the prices in the country.
4. Removal of Food Shortage :-
Pakistan is also facing the food shortage problem. To remove the food shortage Pakistan had imported the wheat in 1989. So due to foreign trade we are solving this problem from many years.
5. Agricultural development :-
Agriculture is the backbone in our economy. Foreign trade has played very important role for the development of our agriculture sector. Every year we export rice, cotton, fruits and vegetables to other countries. The export of these goods makes our farmer more prosperous. It in spires the spirit of development in them.
6. Increase in Employment :-
With the rise in the demand of goods, domestic resources are fully utilized and it increases the rate of development in the country.
7. Industrial Development :-
Now the share of industrial sector is increasing day by day in the exports. The Government has also provided various incentives to the industrialists to improve the exports of this sector. So the rate of industrial development has increased.
8. Specialization :-
There is a difference in the quality and quantity of various factors of production in different countries. Each country adopts the specialization in the production of those commodities, in which it has comparative advantage. So all the trading countries enjoy profit through international trade.
9. Foreign Exchange Earning :-
Foreign trade provides foreign exchange which can be used to remove the poverty by importing technology and capital goods.
10. Import of Consumption Good :-
Most of countries in the world imports the various consumption goods from the other countries which are not produced inside the country.
11. External Economies :-
External economies can also be achieved through foreign trade. The industries producing goods on large scale in their own country are enjoying the external economies due to international trade.
12. Rise in Natural Income :-
Foreign trade increase the scale of production and national income of the country.
13. Competition :-
The producers compete with foreign competitors in the price and quality of the product. This competition in foreign trade improves the quality and reduces the cost of production.
14. Useful for the World Peace :-
Today all the countries are tied in trade relations with each other. So foreign trade also prevails peace and prosperity in the country.
15. Import of Capital and Technology :-
The inflow of capital and technology in the less developed countries has increased the rate of economic development. Prof. Nurkse says that trade is an engine of economic growth.
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