Global trade is a vital component of economic development. It can significantly lower global poverty, reduce costs, create jobs, provide a variety of goods for consumers, and even help countries gain access to new technologies. Here are some of the top advantages international trade offers to the economy:
The Benefits of International Specialization
International specialization, along with the comparative cost theory, is the basis of global trade. Countries can export and specialize in goods that they can produce cheaper in exchange for products that other countries can offer at lower costs. In turn, this raises income, promotes growth, allows for better usage of a country’s resources, and raises the standard of living, which can all be considered as the immediate economic benefits of foreign trade.
Broadening the Market and Increasing Productivity
Another benefit of international trade is the boost in productivity, which is a result of the division of labor, mechanization, and innovation. By expanding the extent of the market and the scope of labor, trade can reduce technical challenges, stimulate innovations, facilitate better use of machinery, and increase both production and productivity. In turn, this allows countries to take advantage of economic development and increasing returns, which are the indirect benefits of foreign trade.
The Educative Effect
International trade can help distribute technological knowledge as well. Lack of knowledge is one of the biggest hindrances to a country’s development. Thus, countries should open up their markets to facilitate trade with advanced economies.
Moreover, foreign trade may also help less developed countries by introducing foreign arts, which will increase the returns gained from additional capital. Thus, trade can have an educational impact on developing countries and bring rise to an industrial and technological revolution.
Exportation of Primary Goods and Importation of Capital Goods Lastly, by importing goods such as partially completed goods, machinery, and industrial raw materials from developed countries, underdeveloped countries can industrialize. They can also export mineral resources and other primary goods, easing the balance-of-payment difficulties.
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