Question

What are some reasons for why countries engage in international trade?

Answer 1

Countries engage in international trade for various reasons some of which are discussed below-

a) To utilise the comparative advantages that a country posses:- Comparative advantage allows a country to set up trade relations with other countries which has effcient way to produce those goods and services which these countries lack of with lowest opportunity cost.

b) To utlise the absolute advantage:- Absolute advantage allows countries tied with trade relations to produce that products for which they have abundant resources and export it to the countries who need it. In return, they also import the products which are not produced in their countries form their counterparts.

c) For political reason:- To build up cordial relations with the powerfull countries, most of the small countries build up international trade relation where either they would export their produced item which they specialsie or import goods and services from other countries.This help them to remain safe from external attacks as their relation with the stronger countries keep their enemies at a bay. Besides in the time of emergencies, they get financial, military and other supports from theie allies.

d) Division of labour:- Most of the products need various parts and ingredients which is not possible to find in a single country. So the countries having the different parts or ingredients for the manufacturing of an item are produced in their respective countries and finally send to the country which gives the final touch of the product. It would have been costlier for the last country to produce the item in it importing the raw materials from the other countries. So by dividing the labour among all the countries specialising with different raw materials halp them achieve a common goal and producing the item at a cheaper rate.

e) Breaking of domestic monopolies:- International trade helps in breaking down the domestic monopoly as more and more products are made available in the domestic market of a country which compels its domestic producers to keep their prices of products at reasonable rate.

f) Boost in the employment:- International trade helps in providing more employment opportunities with the employment of people in the production system, trade and export sector