INTERNATIONAL TRADE

STARTER
Define the following terms:
Imports
Exports
Trade
Domestic trade
Foreign trade
International trade, which can also be referred to as external trade, is the
exchange of goods and services between countries. For example, Nigeria
can decide to trade with USA, Ghana and Benin Republic. Internal trade has
to do with the exchange of goods and services within a country.
ADVANTAGES OF INTERNATIONAL TRADE
1. It brings about economies of scale.
2. Countries can reach a wider market.
3. It generates higher profit
4. Countries are able to source for their products from a wider area
5. Increase in competition can make countries to me be more efficient
6. Exchange of ideas and technology between countries
Disadvantages of international trade

1. There may be language barrier

2. Trade restrictions may make it difficult for firms to sell their products
abroad such as tariffs which may increase the price
of goods.
3. International trade exposes firms to more competition
4. Interdependency between countries
EXPORTS AND IMPORTS
Exports are goods and services made by producers in a country and sold to
consumers in other countries. Exports serve as revenue to a country
because it is an inflow of money from goods and services sold abroad.
Imports are goods and services bought by consumers from other countries.
Import is an outflow of money out of a country.
VISIBLE TRADE
This involves trade in physical goods such as machinery, natural resources,
finished products like cars, clothes and processed foods. Visible trade can
be in form of import and export. When a country imports more than it
exports, there is trade deficit (unfavourable trade balance) but when a
country exports than it imports, there is a trade surplus (favourable trade
balance).
Therefore, balance of trade = value of visible export – value of visible
import
INVISIBLE TRADE
This involves trade in services. Exports and imports of services such as
insurance, banking, tourism, shipping and transport services. Invisible
import refers to the payment for services enjoyed by residents of a country
abroad. If invisible import exceeds the invisible export, then there is
invisible trade deficit but when invisible export is greater than invisible
import, there is invisible trade surplus.
Therefore, balance on services = value of invisible exports – value of
invisible imports
Factors influencing the value of a country’s exports and imports
1. The country’s inflation rate: a country facing a higher inflation rate
would mean that there will be difficulty in exporting the country’s
products. However, a fall in inflation rate will increase a country’s
international competitiveness and also increase export and reduce import.
2. The country’s exchange rate: a fall in a country’s exchange rate will
lower export prices and raise import prices. This will likely to increase the
value of its export and lower the amount spent on import.
3. Productivity: a rise in productivity will lead to greater number of
household and firms buying more of the country’s products which will
increase export and reduce import. Productivity can be defined as output
per worker.
4. Domestic GDP: If incomes rise at home, more imports may be bought.
Firms are likely to buy more raw materials and capital goods and some of
these will come from abroad. Households will buy more products and some
of these products will be imported. A rise in domestic demand may also
encourage some domestic firms to switch from the foreign to the domestic
market which will make export to fall
5. Trade restrictions: a relaxation in trade restriction abroad makes it
easier for domestic firms to sell their products to other countries.
CLASS ACTIVITY
India has experienced a relatively high economic growth rate in recent
years. This growth has been driven by increases in government spending
and exports, including exports of textiles. India’s unemployment rate has,
however, increased. The government is concerned that trying to reduce
unemployment may increase India’s inflation rate.
Explain the possible opportunity cost to India of exporting more textiles. [4
INTERNATIONAL SPECIALISATION

Countries usually concentrate on producing those products they are best at

making and which are in high global demand. What countries are best at
producing is influenced by the quantity and quality of their resources.

ACTIVITY 2
Textiles is a major industry in Bangladesh and, in 2016, it accounted for 70% of its
exports. Nearly 15% of its exports go to the USA. Clothing is also an important
industry in Turkey, but accounts for only 12% of its exports.
a On the basis of information provided, decide which country is more specialised.
b Identify the other piece of information that could help you decide the answer to
(a).
Advantages and disadvantages of specialisation at a national level
1. If countries specialise in what they are best at producing, the output
should be higher. The higher output should enable consumers to enjoy
more goods and services and hence have higher living standards.
2. Specialisation can enable the firms in the country concentrating on
producing the product to develop skills and techniques in its production.
This would raise the quality of the product.
3. Specialisation may also result in lower costs of production and the
benefit of this may be passed on to consumers in the form of lower price.
DISADVANTAGES
1. that one country or a small number of countries may gain control
of most of the global market for a product and may use its or their power
to restrict supply and push up price.
2. If consumers are buying products from foreign specialists, those firms
may not follow the same health and safety standards as in the home
country. Thereby supplying demerit goods.
3. Any problems that may occur in the countries that are producing the
product, including natural disasters, may mean that the products are
unavailable, at least for some time.