Importance Of Foreign Trade

Foreign Trade

Foreign trade is nothing but trade between the different countries of the world. It is also called as International trade. Foreign trade is exchange of capital, goods, and services across international borders or territories. In most countries, it represents a significant share of gross domestic product (GDP).

Importance for a Country to participate in Foreign Trade

All countries need goods and services to satisfy wants of their people. However, no country can produce all the goods and services that it requires as every country has only limited resources.

Therefore, countries have to buy from other countries what it cannot produce or can produce less than its requirements. Similarly, it sells to other countries the goods which

Division of labour and specialisation - Foreign trade leads to division of labour and specialisation at the world level. Some countries have abundant natural resources. They export raw materials and import finished goods from countries which are advanced in skilled manpower. This gives benefits to all the countries and thereby leading to division of labour and specialisation.

2. Equality of prices- Prices can be stabilised by foreign trade. It helps to keep the demand and supply position stable, which in turn stabilises the prices, making allowances for transport and other marketing

Generate employment opportunities - Foreign trade helps in generating employment opportunities, by increasing the mobility of labour 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.

6. 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.

7. 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.

8. 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