International Trade: Definition, History, Causes, Benefits & Theory
International trade
International trade is the exchange of goods and services between different countries of the world. International trade is driven by the productive possibilities of each country, the economic benefits and the needs and preferences in consumption, this is what motivates countries to get involved in international trade.
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Reasons for international trade
The reasons for countries to want to exchange goods and services are:
Regional differences in production conditions
Because all countries are different, their geographic location, climate, and factors of production (land, labor, capital, and technology), the nature and quality of the goods and services they can produce are very different.
For example, in the case of tropical countries and cold climate countries, a tropical country can produce mangoes and bananas, while a temperate country produces apples and pears. Another example is how a country with large oil reserves sells oil to those countries that don’t have it.
The fall in costs of production
If increasing production makes the production costs fall, there will be more desire to export the goods and services produced. Many industrial processes tend to have better average production costs as the amount produced increases, therefore, the best way to expand production is to sell to the world market.
Differences in preferences
People have different tastes they will want to satisfy with a diversity of goods and services, but their country can’t always produce them all. and that is another reason for international trade to exist.
Regional differences and comparative advantage
Regional differences regarding production conditions as incentives for international trade
Regional differences regarding production conditions are a real incentive for all countries in the world to want to exchange goods and services with other countries because their characteristics and factors of production such as capital, land, labor, and technology are not the same.
Therefore, they don’t have the capacity to produce all the diversity of products and, in order to be able to offer their citizens greater options and better quality, they will be encouraged to import and export.
For example, a country that doesn’t have oil will have to import it from a country that does have it. Or a country that doesn’t have tropical fruits due to its cold climate will be forced to bring them from abroad.
See also