what is trade what are its types how and why is foreign trade important for a country's economy
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Trade refers to buying and selling of goods and services for money or money's worth. It involves transfer or exchange of goods and services for money or money's worth. The manufacturers or producer produces the goods, then moves on to the wholesaler, then to retailer and finally to the ultimate consumer.
Trade can be divided into following two types, viz.,
1. Internal or Home or Domestic trade.
2. External or Foreign or International trade.
Internal trade can be further sub-divided into two groups, viz.,
1 wholesale trade
2 retail trade
External trade can be further sub-divided into three groups:
1 Export trade
2 Import trade
3 Entrepot trade
IMPORTANCE OF FOREIGN TRADE:
Division of labor and specialization – Foreign trade leads to division of labor and specialization at the world level. Some countries have abundant natural resources thus they should export raw materials and import finished goods from countries which are advanced in skilled manpower. Thus foreign trade gives benefits to all the countries and thereby leading to division of labor and specialization.
Optimum allocation and utilization of resources – Due to specialization, unproductive lines can be eliminated and wastage of resources can be minimized or avoided. In other words, resources are channelized for the production of only those goods which would give highest returns. Thus there is rational allocation and utilization of resources at the international level due to foreign trade.
Equality of prices – Prices can be stabilized by foreign trade. It helps to keep the demand and supply position stable, which in turn stabilizes the prices.
Availability of multiple choices – Foreign trade helps in providing a better choice to the consumers. It helps in making available new varieties to consumers all over the world, thus giving the consumers a wide variety of options to choose from.
Ensures quality and standard goods – Foreign trade is highly competitive in order to maintain and increase the demand for goods, the exporting countries have to keep up the quality of goods. Thus foreign trade ensures that the quality and standardized goods are produced
Raises Standard of Living of the people –Imports can facilitate standard of living of the people. This is because people can have a choice of new and better varieties of goods and services. By consuming new and better varieties of goods, people can improve their standard of living.
Generate employment opportunities – Foreign trade helps in generating employment opportunities, by increasing the mobility of labor and resources. It generates direct employment in import sector and indirect employment in other sector of the economy. Such as Industry, Service Sector (insurance, banking, transport, communication), etc.
Facilitate economic development – Imports facilitate economic development of a nation. This is because with the import of capital goods and technology, a country can generate growth in all sectors of the economy, i.e. agriculture, industry and service sector.
Assistance during natural calamities – During natural calamities such as earthquakes, floods, famines, etc., the affected countries face the problem of shortage of essential goods. Foreign trade enables a country to import food grains and medicines from other countries to help the affected people.
Maintains balance of payment position – Every country has to maintain its balance of payment position. Since every country has to import which results in outflow of foreign exchange, it also deals in export for the inflow of foreign exchange.
Brings reputation and helps earn goodwill – A country which is involved in exports earns goodwill in the international market. For e.g. Japan has earned a lot of goodwill in foreign markets due to its exports of quality electronic goods.
Promotes World Peace – Foreign trade brings countries closer. It facilitates transfer of technology and other assistance from developed countries to developing countries. It brings different countries closer due to economic relations arising out of trade agreements. Thus, foreign trade creates a friendly atmosphere for avoiding wars and conflicts. It promotes world peace as such countries try to maintain friendly relations among themselves.
Trade can be divided into following two types, viz.,
1. Internal or Home or Domestic trade.
2. External or Foreign or International trade.
Internal trade can be further sub-divided into two groups, viz.,
1 wholesale trade
2 retail trade
External trade can be further sub-divided into three groups:
1 Export trade
2 Import trade
3 Entrepot trade
IMPORTANCE OF FOREIGN TRADE:
Division of labor and specialization – Foreign trade leads to division of labor and specialization at the world level. Some countries have abundant natural resources thus they should export raw materials and import finished goods from countries which are advanced in skilled manpower. Thus foreign trade gives benefits to all the countries and thereby leading to division of labor and specialization.
Optimum allocation and utilization of resources – Due to specialization, unproductive lines can be eliminated and wastage of resources can be minimized or avoided. In other words, resources are channelized for the production of only those goods which would give highest returns. Thus there is rational allocation and utilization of resources at the international level due to foreign trade.
Equality of prices – Prices can be stabilized by foreign trade. It helps to keep the demand and supply position stable, which in turn stabilizes the prices.
Availability of multiple choices – Foreign trade helps in providing a better choice to the consumers. It helps in making available new varieties to consumers all over the world, thus giving the consumers a wide variety of options to choose from.
Ensures quality and standard goods – Foreign trade is highly competitive in order to maintain and increase the demand for goods, the exporting countries have to keep up the quality of goods. Thus foreign trade ensures that the quality and standardized goods are produced
Raises Standard of Living of the people –Imports can facilitate standard of living of the people. This is because people can have a choice of new and better varieties of goods and services. By consuming new and better varieties of goods, people can improve their standard of living.
Generate employment opportunities – Foreign trade helps in generating employment opportunities, by increasing the mobility of labor and resources. It generates direct employment in import sector and indirect employment in other sector of the economy. Such as Industry, Service Sector (insurance, banking, transport, communication), etc.
Facilitate economic development – Imports facilitate economic development of a nation. This is because with the import of capital goods and technology, a country can generate growth in all sectors of the economy, i.e. agriculture, industry and service sector.
Assistance during natural calamities – During natural calamities such as earthquakes, floods, famines, etc., the affected countries face the problem of shortage of essential goods. Foreign trade enables a country to import food grains and medicines from other countries to help the affected people.
Maintains balance of payment position – Every country has to maintain its balance of payment position. Since every country has to import which results in outflow of foreign exchange, it also deals in export for the inflow of foreign exchange.
Brings reputation and helps earn goodwill – A country which is involved in exports earns goodwill in the international market. For e.g. Japan has earned a lot of goodwill in foreign markets due to its exports of quality electronic goods.
Promotes World Peace – Foreign trade brings countries closer. It facilitates transfer of technology and other assistance from developed countries to developing countries. It brings different countries closer due to economic relations arising out of trade agreements. Thus, foreign trade creates a friendly atmosphere for avoiding wars and conflicts. It promotes world peace as such countries try to maintain friendly relations among themselves.
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ᴛʀᴀᴅᴇ
ᴛʀᴀᴅᴇ ʀᴇғᴇʀs ᴛᴏ ʙᴜʏɪɴɢ ᴀɴᴅ sᴇʟʟɪɴɢ ᴏғ ɢᴏᴏᴅs. ᴀ ᴛʀᴀᴅᴇʀ ᴘᴜʀᴄʜᴀsᴇs ɢᴏᴏᴅs ғʀᴏᴍ ᴍᴀɴᴜғᴀᴄᴛᴜʀᴇʀs ᴀɴᴅ sᴇʟʟs ᴛʜᴇᴍ ᴛᴏ ᴄᴏɴsᴜᴍᴇʀs.
- ᴛʀᴀᴅᴇ ɪs ᴄᴏɴғɪɴᴇᴅ ᴛᴏ ʙᴜʏɪɴɢ ᴀɴᴅ sᴇʟʟɪɴɢ ᴏғ ɢᴏᴏᴅs ᴀɴᴅ ɪs ᴀ ᴘᴀʀᴛ ᴏғ ᴄᴏᴍᴍᴇʀᴄᴇ, ᴡʜɪᴄʜ ɪs ᴡɪᴅᴇʀ ᴛᴇʀᴍ ᴛʜᴀᴛ ɪɴᴄʟᴜᴅᴇs ᴛʀᴀᴅᴇ ᴀɴᴅ ᴀɪᴅs ᴛᴏ ᴛʀᴀᴅᴇ.
ᴛʏᴘᴇs ᴏғ ᴛʀᴀᴅᴇs
ᴛʀᴀᴅᴇ ᴄᴀɴ ʙᴇ ᴅɪᴠɪᴅᴇᴅ ɪɴᴛᴏ ғᴏʟʟᴏᴡɪɴɢ ᴛᴡᴏ ᴛʏᴘᴇs, ᴠɪᴢ.,
- ɪɴᴛᴇʀɴᴀʟ ᴏʀ ʜᴏᴍᴇ ᴏʀ ᴅᴏᴍᴇsᴛɪᴄ ᴛʀᴀᴅᴇ.
- ᴇxᴛᴇʀɴᴀʟ ᴏʀ ғᴏʀᴇɪɢɴ ᴏʀ ɪɴᴛᴇʀɴᴀᴛɪᴏɴᴀʟ ᴛʀᴀᴅᴇ.
ғᴏʀᴇɪɢɴ ᴛʀᴀᴅᴇ
ғᴏʀᴇɪɢɴ ᴛʀᴀᴅᴇ ʜᴇʟᴘs ɪɴ ɢᴇɴᴇʀᴀᴛɪɴɢ ᴇᴍᴘʟᴏʏᴍᴇɴᴛ ᴏᴘᴘᴏʀᴛᴜɴɪᴛɪᴇs, ʙʏ ɪɴᴄʀᴇᴀsɪɴɢ ᴛʜᴇ ᴍᴏʙɪʟɪᴛʏ ᴏғ ʟᴀʙᴏᴜʀ ᴀɴᴅ ʀᴇsᴏᴜʀᴄᴇs.
- ɪᴛ ɢᴇɴᴇʀᴀᴛᴇs ᴅɪʀᴇᴄᴛ ᴇᴍᴘʟᴏʏᴍᴇɴᴛ ɪɴ ɪᴍᴘᴏʀᴛ sᴇᴄᴛᴏʀ ᴀɴᴅ ɪɴᴅɪʀᴇᴄᴛ ᴇᴍᴘʟᴏʏᴍᴇɴᴛ ɪɴ ᴏᴛʜᴇʀ sᴇᴄᴛᴏʀ ᴏғ ᴛʜᴇ ᴇᴄᴏɴᴏᴍʏ.
- sᴜᴄʜ ᴀs ɪɴᴅᴜsᴛʀʏ, sᴇʀᴠɪᴄᴇ sᴇᴄᴛᴏʀ (ɪɴsᴜʀᴀɴᴄᴇ, ʙᴀɴᴋɪɴɢ, ᴛʀᴀɴsᴘᴏʀᴛ, ᴄᴏᴍᴍᴜɴɪᴄᴀᴛɪᴏɴ), ᴇᴛᴄ.
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