REVIEWER

INTL TRADES

INTERNATIONAL TRADE
• International trade is that branch of economics which is concerned with the exchange
of goods between one country and another.
•It is the movement of goods and services from one Geographical Boundary to another.
•It is trading with foreign countries. But it is only an extension of internal or domestic
trade.

INTERNATIONAL TRADE
• The main motive behind international trade is Profit.
• Profit from international trade like the Profits from all trade arises because of the fact
that specialization increases productivity

International trade means trade between nations with different elements of

productive power. Factor endowment refers to the richness, abundance, and easy
availability of
factors of production (namely land, labor, and capital) to the country. This theory
argues that a country that has relatively large labor forces should concentrate on
production through labor-intensive means.

EXPORT / EXPORTATION
When domestic production is greater than domestic demand for a good, excess
production is traded on the international
market. The act of selling domestically produced goods to international consumers is
known as exportation.

MERCANTILISM
• A trade theory prevailed during 16th to 18th century
• The wealth of a nation is measured based on its accumulated wealth in terms of gold
and silver
• Nations should accumulate wealth by
encouraging exports and discourage imports
• This theory aims at creating trade surplus and in turn accumulate nation’s wealth

• It relies on the fact that exports bring in

money; so it is positive, and imports cause
outflow of money, so it is negative.
• Today, there is still mercantilism in the form of economic nationalism
• For example Japan Is called “fortress of
mercantilism:. They have an impenetrable
market with traditional preoccupation with self-sufficiency and :us against them”
mentality. There are no obvious trade barriers against foreign products but have cultural
barriers where Japanese don’t buy foreign products.

IMPORT / IMPORTATION
The act of purchasing goods from a foreign country in order to sell them domestically is
known as importation.

INTER-REGIONAL TRADE VS
INTERNATINAL TRADE
•Interregional trade refers to trade between regions within a country. Thus
interregional trade is domestic or internal trade.
•International trade on the other hand, is trade between two nations or
countries.

FOUR T’S IN INTERNATIONAL TRADE

1. Transaction costs
2. Tariff and non-tariff cost
3. Transport costs
4. Time costs

TRANSACTION COSTS.
• Transaction costs. The costs of economic
exchange that lie behind trade. It can
include gathering information, negotiating
and enforcing contracts, letters of credit,
and transactions, as well as monetary
exchange rates if the transaction is in
another currency.
• Transactions within a corporation are
typically less expensive than transactions
between corporations. Nonetheless, with
e-commerce and e-documentation, they
have significantly decreased.

TARIFF AND NON-TARIFF COSTS

• Government levies imposed on a
realized trade flow. They can include a
direct monetary cost based on the
product being traded (e.g., agricultural
goods, finished goods, petroleum, etc.) or
standards that must be met before a
product can enter a foreign market.
• Tariffs have been reduced through a
variety of multilateral and bilateral
agreements, and internationally
recognized standards (e.g., ISO) have
marginalized non-tariff barriers.

TRANSPORT COSTS.
• The total cost of transporting goods from the point of manufacture to the point of
consumption. Containerization,
intermodal transportation, and economies of scale have significantly reduced
transportation costs.

TIME COSTS
• Delays caused by the time it takes between placing an order and receiving it from the
buyer, also known as inventory in transit.
• Long-distance international trade is frequently associated with time delays, which are
exacerbated by customs inspection delays.
• Supply chain management strategies can effectively mitigate time constraints,
specifically through concepts such as just-in-time distribution supported by a consistent
frequency of deliveries.

SEPARATION FACTORS
• Separation factors such as distance,
transportation costs, and travel time are
causing friction in trade due to geography
and the structure of international
transportation networks.
• Transportation infrastructure, specifically
ports, can aid in mitigating these
separation factors. Countries that are part
of the same trade agreement typically
have lower separation factors than
countries that are close but not part of the
trade agreement.

COUNTRY-SPECIFIC FACTOR
• Country-specific factor - Customs
procedures, for example, are primarily under the control of the concerned nation and
can have a negative impact on trade if tariffs are high and restrictions are imposed on
specific goods. As the fundamental "first and last mile leg" in a supply chain, the
national transportation system, particularly its main gateways and corridors, has a
significant impact on the performance of international trade flows

FEATURES OF INTERNATIONAL TRADE

1. Immobility of Factors of Production
2. Heterogeneous Market
3. Different National Policies
4. State Intervention
5. Differences in Socio-economic Environment
6. Different Political Units
7. Different Currencies
8. Degree of Competition

FOUR MAJOR REASONS FOR

INTERNATIONAL TRADE
1. Production Since countries on their own would fail to produce quality
products at a reasonable cost, they are independent of one another
significantly.
2. Unequal Distribution of Resources. Resources are limited. Also, not all
geographical regions are blessed with substantial resources to produce
everything the consumers need.
3. Factors of Production Cost of factors of production like raw material,
capital, labor, etc. are available at different rates in different countries.
4. Cost of Production The cost of production tends to vary from one
region to another.

ABSOLUTE ADVANTAGE
• INTRODUCED BY ADAM SMITH
•IT IS THE ABILITY TO PRODUCE MORE
EFFICIENTLY WITH THE GIVEN RESOURCES.
• COUNTRY SPECIALIZES IN THE COMMODITY ON WHICH IT HAS ABSOLUTE
ADVANTAGE

COMPARATIVE ADVANTAGE
•INTRODUCED BY DAVID RICARDO
• THE ABILITY TO PRODUCE WITH A LOWER OPPORTUNITY COST