A country’s share of international trade depends on its economic development status. A growing economy necessitates and leads to prosperity as well as an increase in employment rate. More advanced economies enjoy developed markets in which various financial tools are known and used frequently. Developing countries, however, work their way towards wealth and prosperity through industrialization while rural economies rely on agriculture without much attention to other industries. The value of a diversified economy should never be overlooked.
Comparative and Absolute Advantage
Economic growth depends on a nation’s capability to offer products and services internationally. According to the comparative cost principle, a country’s production should be based on its ability to offer products at the lowest price. It is also best to focus on resources, knowledge and skills where there is an obvious advantage, while considering the trade-offs and opportunity costs. When a product or service can be offered at a lower opportunity cost, it becomes a comparative advantage. An absolute advantage exists when a product or service is the cheapest in the world, or when no other country has the same skills, knowledge, or technology.
The Trade Balance
International trade refers to the amount of a country’s import and export. Imports includes goods or services which do not exist within the country as well as those which cannot be sufficiently met domestically. On the other hand, saturated domestic market lead to a surplus which can be offered internationally, considering their comparative advantage. In some cases, certain services or products are specifically designed and offered internationally. A country’s trade balance indicates its performance in terms of international trade. When there is an excess of export in compare to the amount of import, it is said that a trade surplus exists, also known as a positive trade balance.
International Trade Limitations
International trade includes both visible and invisible ones. While trade of goods are considered visible trade, invisible trade includes transfers of non-tangible goods or services. Although free trade is being constantly emphasized, international trade usually is limited by quotas and tariffs. Such restrictive measures aim to avoid domestic products becoming weakened as well as to protect the market against dumping. Protectionism is considered necessary in certain areas, especially if the existence of competition severely weakens local businesses if strategic industries. This can lead to certain limitations on trade liberalization.
International trade is possible when the economic output allows for it. The Gross Domestic Product (GDP) indicates the amount of goods and services produced annually. The GDP is an indicator of economic prosperity. GDP per capita is used to indicate the production in relation to the population of that country. The population both contribute to production and trade and benefit from it. Economic prosperity leads to improved living standards and offers chances of personal, societal, and national development. The Gross National Income (GNI) includes GDP as well as earnings from overseas investments. On the other hand, The Gross National Product (GNP) shows earnings by residents regardless of where they are spent. It also deducts earnings made by foreigners even if they spend their income within the country. You may refer to https://www.thebalance.com/gross-national-income-4020738 for more information on these indicators.
International trade depends on the skills and knowledge of the workforce and efficient production. These affect a country’s trade balance, their import of essentials or requirements as well as export capabilities. Economic prosperity leads to higher living standards and a more developed market, if investments are made considering opportunity costs and comparative advantages.
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