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International Trade: “International Trade is simply the extension of the trade beyond the

boundaries of a nation”. It is a trade between two or more than two countries. Trade between India
and U.K. is called international or foreign trade. The goods consigned from India to U.K. will be
known as India’s exports. On the other hand, goods coming from U.K. to India will be called
India’s imports.

International trade takes place on account of many reasons such as:

1. Human wants and countries’ resources do not totally coincide. Hence, there tends to be
interdependence on a large scale.
2. Factors endowments in different countries differ.
3. Technological advancement of different countries differ. Thus, some countries are better placed
in one kind of production and some others superior in some other kind of production.
4. Labour and entrepreneurial skills differ in different countries.
5. Factors of production are highly immobile between countries.
In short, international trade is the outcome of territorial division of labour and specialization in the
countries of the world.

The following are the distinguishing features of international trade:

a) Immobility of Factors: The degree of immobility of factors like labour and capital is generally
greater between countries than within a country. Immigration laws, citizenship, qualifications, etc.
often restrict the international mobility of labour. International capital flows are prohibited or
severely limited by different governments. Consequently, the economic significance of such
immobility of factors tends to equality within but not between countries..

b) Heterogeneous Markets: In the international economy, world markets lack homogeneity on

account of differences in climate, language, preferences, habit, customs, weights and measures,
etc. The behaviour of international buyers in each case would, therefore, be different.

c) Different National Groups: International trade takes place between differently cohered groups.
The socio-economic environment differs greatly among different nations.

d) Different Political Units: International trade is a phenomenon which occurs among different
political units.

e) Different National Policies and Government Intervention: Economic and political policies differ
from one country to another. Policies pertaining to trade, commerce, export and import, taxation,
etc., also differ widely among countries though they are more or less uniform within the country;
Tariff policy, import quota system, subsidies and other controls adopted by governments interfere
with the course of normal trade between one country and another.

f) Different Currencies: Another notable feature of international trade is that it involves the use of
different types of currencies. So, each country has its own policy in regard to exchange rates and
foreign exchange.
Foundation Of World Trade:

1. International Specialization: One of the basic foundations of international trade is international

specialization. It means that different countries of the world specialize in the production of those
goods in whose production they possess special resources.

International specialization is the result of division of labour. According to Prof. Harrod, ordinarily
exchange is the necessary consequence of division of labour. When division of labour crosses
national boundaries, there arises foreign trade. International trade, therefore, is an inevitable result
of division of labour.

2. Non-availability of a Specific Factor: Every country does not possess all kinds of resources.
Some resources may be available in some countries while other countries may be in possession of
other resources. For instance, the USA lacks the soil and climate to produce tea and Japan has no
iron mines. They have to import these goods. Likewise India has to import tin, as the same is not
available here.

3. Difference in Costs: One of the significant causes of international trade is the difference in costs
of different goods in different countries. Such a difference may be of two kinds:

i) Absolute Cost Difference: It means that a country can produce a commodity at an absolutely
cheaper cost than the other country. According to the eminent economist Adam Smith, the main
basis of international trade is the difference in absolute costs.

ii) Comparative Cost Difference: It means that a country can produce all goods at a lower cost than
the other country, yet the cost of producing some goods is comparatively less than all other goods.
According to Ricardo the main cause of international trade is the comparative difference in costs.

4. Product Differentiation: It is often observed that, a country does import a commodity that she
herself can produce. For instance, India produces cloth on a large scale and also exports it,
nevertheless she imports different varieties of cloths, such as saris made in Japan and other
countries. It is to enable the Indians to consume larger varieties of goods.

India & World Trade:

India is a key player in world trade and a member country of the World Trade Organization. India
is a partner of some major trading blocs as well.

Key Indicators of India’s Foreign Trade & Development: