Difference Between Internal and International Trade PDF

between Internal and International Trade Difference regional trade is the result of division International trade, like inter people specialize in producing goods in whih labour. In both types of trade,...

between Internal and International Trade Difference regional trade is the result of division International trade, like inter people specialize in producing goods in whih labour. In both types of trade, advantage :However amidst these similarites they have a greater comparative there also exist differences between the two. These differences arise dueto differences in mobility of factors of production, natural endowments, stock of capital, political sovereignty, currency system, separate markets, and so on. 1. Immobility offactorsof production The degree of immobility of factors like labour and capital isgeneraly greater between countries than within the country. Immigration laws, citizenship requirements, foreign investment policies of a nation, and so on often restrict the international mobility of labour and capita, Economics #2  whereas in intornal lrado laclors of producllon aro froo to mnovo Irom one part of the nation lo anolhor o.g. a compulor onginoor Irom Goa can take up a job anywhoro Indla withoul any pormnlssion from tho government but to tako upa job in (ho Unilod Slalos ho/sho will havo to be granted a visa (work pormil )by tho US ombassy. 2. Heterogeneous market World markets lack homogonity on accounl of difloroncos in languago, tastes and preference, cusloms olc. Domostic markets aro usually homogeneous with respoct lo the abovo montioned factors. For example, Indians have right hand driven cars while Americans have left hand driven cars. Thus, two difforent types of cars neod to be manufactured to be sold in these two nalions. 3. Different national groups Socio-economic background plays a pivotal role in determining the type of goods and services thatwould be produced and consumed in any nation. It basically refers to different standards of living, per capita income, social values etc. Social-economic factors influencing demand are almost similar domestic trade but these factors differ between in nations. Hence, we find differences in the nature of products being consumed in different nations. For example, the demand for luxurious and expensive products is more in rich countries like America and England than in poor countries like Bangladesh and Nigeria. 4. Different political and economic policies Political policies are different among different nations whereas they central government are by and large the same in a particular nation. The of any nation may adopt trade restriction measures like customs duties imports for and exchange control, with the ultimate aim of reducing and creating additional the purpose of protecting home industries would not be adopted domestic employment. Such trade restrictions within acountry. ban or drastically reduce The economic policy of Western economiesto reduce India's service exports, outsourcing to companies in India will deficit and adversely affecting thus creating a huge current account Such stringent economic policies the balance of payments position. will not be adopted by states belonging to one nation. always be framed considering Economic and politicalpolicies would the welfare of its nationals rather than that of foreigners. Economics # 3  In clrculatlon 5. Difforont currongloe 0conomlc tranoactiong vwith domoslla trndo nll th0 In willinvolvo just ong currenc, of goods ond norvicos For Oxchango partlcular nation. 97arnpl9,in of What tho national curroncy whoroas in international bo usod, Only thoIndian rupoo would involvOs the us0 of of goodo and sorvicos For # Iho oxchango values. wilh difforont diflsrer natlons rexarnpls, of dilloront so on. Curroncios Pound storling, and rupoo, Euros, clollars, Indian 6. Distanco and cost is gonorally groator also tho cost of of transport Tho distanco involvod in shipplng Iranslor goods of goods fron thanthe distanco from the cost of transport involved one nation to within the one nation to another is is lower anothg nation,. in internal tracte USualy. highor wheroas 7. Trado rostrlctlve practlcos common in international measures are very trarte. Trado rostrictive extent arndlevel of to reducethe Trade is basically restricted are irnpots. measures which restrictive adopted Different types of trade etc. Nations or regulations quotas, exchange restrictions tariffs, reducing deficit in the measures with the aim of currert such kinds of Scarce to protect home industries, to preserve foreign account, are ahee etc. Such kínd of trade restrictions exchange reserves domestic trade. 8. Numnber of buyers and sellers trade surpasses the sellers in international The number of buyers and trade. This makes intematinrsl in internal number of buyers and sellers to internal trad. and risky as compared trademuch more competitive Factors Influencing International Trade When we speak of factors influencing internationaltrade, we basically reason out why international trade exists, why different nations trade in different types of goods and services,why products are differentiated in the international market and so on and so forth. 1) Difference in factor proportions: Nature has endowed some nations with an abundance of labour while others arecapital abundant. Thus, differences in factor proportions among nations lead to different goods being produced and exported by different nations. Countries having labour abundance should produce and export labour intensive products and import capital intensive products from capital abundant nations. For example Bangladesh exports rice and imports electronic products. Economics #8  the price of the product inthet foreign n production and thus raises market. is situated close to its trade partners, If an exporting nation then would be minimum, and vice versa. A transport cost its cost country transport cost would lose advantage experiencing huge trade. Thus. oyver in international a period of time to its competitors ,transpon import and to whom to expo cost willdetermine from whom to Existence of trade blocks or regional agreements : When a group a trading block, then as 6) themselves into perthe of countries organize to trade with the members of the group agreement they prefer Canada rather example, the United States, than with non-members. For of NAFTA (North American Free Mexico are members Trade States would prefer and hence the United importing Agreement) India; a non-member io Mexico, even agricultural products from types of trade blocks hamper it at a lower price. These ableto export the growth of world trade. mota free trade is a myth. In the 7) Artificial trade barriers: In reality, some trade barriers on the import and exn world, all nations impose of goods. Such customs duties, exchange regulation barriers like to protect home industriee and investment regulation, may be imposed reserves etc. These barriers affo or to preserve foreign exchange the of productive resOurces and also restrict the optimum utilization growth of world trade. international tradine 8) Natural barriers Other : factors that influence Natural physical to the physical environment. activities are related imDact on and rivers, can have an features, such as mountains activities. For example, a large numberof potential trading intermational barriers, such where natural physical a country customers may live in facilities) the absence of proper transport as mountains and rivers, (in the product to the market nearly impossible of would make transport goods in the world market will be demand for Hence Supply of and reduced.  Tochnological development : The fifth factor of production which has been growing in importance nowadays is Technology',(traditional tactors being land, labour, capital and enterprise). Technology is basically the application of knowledge and expertise to overcome obstacles in the process of production. It has helped the nations to transform their cost disadvantage into cost advantage. has helped It the nations across the globe to substitute the scarce factors of production with the abundant factors of production. Technology has enabled, an agricultural country like India to launch an unmanned mission to themoon. It has helped many nations reduce their overall dependernce on importing nations with respect to goods of national and strategic importance like defence equipment. a size and extent of domestic demand: The export capacity of any nation will depend on the domestic demand. Changes domestic demand will affect the exports of the nation. In case the domestic demand increases due to various reasons like higher income, growth of population, and so on, then would adversely atfect the export it due capacity of the nation. Similarly, domestic demand decreases if to change in tastes and preferences, fashion, government policies, and extent and so on, then exports will increase. Sometimesthe size of domestic demand for a particular product can reverse the direction of trade. As we all know India exports agriculturalproducts like wheat due to higher domestic and sugar but there have been periods wherein India has imported demand and comparatively lower home production these goods. is highly competitive and 4) Product differentiation : International trade markets and products. So to is characterised by heterogeneous products, countries increase the export market for their respective Under product adopt the strategy of product differentiation. product remains the same, but differentiation,the basic use of the eye-catching designs, products are made to look different by using a method for attracting international packaging, advertisement etc. It is than that of your competitors. Customers to buy more of your product exported to England and British For example, Italian Fiat cars are Ford cars are exported to ltaly. not Ricardo and Hecksher-Ohlin did 5) Transport cost: Adam Smith, cost while explaining gains from give importance to transport a respective theories. But, in reality international trade in their substantial transport cost may turn the cost advantage of a country the total cost of Transport cost adds up to Into a cOst disadvantage. Economics # 9  Giauhs ocm itounafenal lhade Higherleuel prodectin into nation prodyciu capacy of a toindia ahich eads to me oace oealth. 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