7/18/22, 10:45 AM Preconditions for Trade | Free Online Course | Alison

Module 1: World Trade Patterns

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Major Drivers of Trade

The most significant factor affecting the amount of trade that occurs, is economic growth. When countries
experience periods of economic growth, reflected in the Gross Domestic Product (GDP Growth), it results
in healthy increases in imports and exports. 

A sustainable state of equilibrium in trade will exist if the imports and exports of a country are relatively
balanced. However, when imports and exports fall out of balance, pressures begin to effect the economy
and will ultimately have to be corrected.

Exchange rates is another major driver of trade. The exchange rate is the value of the currency of one
country in relation to another. A statement such as "The US dollar is declining," means that the dollar is
declining, not just against one currency but many at the same time.

If the currency of country A is falling in relation to the currency of country B, the goods of country A will
become cheaper in the market of country B, and conversely, the goods of country B will become more
expensive in the market of country A. Therefore, all else being equal, it is likely that country A's exports in
relation to country B will increase, while country B's exports in relation to country A, will decline.

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