Assignment on Trade, aid and Development

International trade is basically exchange of goods, capitals across the international borders.
This type of trade has a significant share on the gross domestic product. Different country
produces different products. All the countries differ in terms of service traded. It is the fact
that there are particular trade patterns, but, during trade, one country may not follow the
other country’s trade pattern. They produce their own product portfolios and trade
according to their trade policies.

There are certain policies for trade. Trade basically occurs when one country has a scarce
resource within them, so they want to buy that product from other country that may have
an ample supply of that product, in return of which they have to provide some services to
other country. Now, there are two type of country. One country trades to keep a friendly
relationship with the neighbouring country or for logical basis. For example India, US, China,
UK those have a great diversity in resources. Second are those countries that trade for the
survival purposes. Such as Singapore, Hong Kong trades as they have very less resource
reserves within themselves.

According to the theory of Mercantilism, it attributes and measures the wealth of any
nations on the basis of the size of its accumulated treasures. The wealth is basically the
amount of Gold or silver the country possess as in the earlier times, those were taken to be
as the currency of international trade. This theory came into existence mainly with the
intention of creating trade surplus because it will lead to more accumulation of wealth in
the country. European Unions i.e. Germany, France, Portugal, Spain, Italy formed colonial
power and engaged themselves in the international trade with an aim to increase the
resources of their respective motherland. The policy of mercantilism basically was greatly
beneficial for accumulating wealth as the colonies served the cheap sources as primary
commodities for the industries for consumption as well as like a raw material. The theory
was success though it has lot of limitations like this theory exists only in the short run and
accumulation of the wealth of one country leads to the cost of another country.

According to Adam Smith, a country has an absolute advantage over the other country if it
has a capability of producing commodities more efficiently and cost effectively than the
other country. The country will only be able to know about its absolute advantage by
repeating the production of a particular product or by switching production of a product to
another with the intention of switching workers. David Ricardo