Following
points explain the need and importance of foreign trade to a nation.
1. 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 should 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. Optimum
allocation and utilisation of resources
Due to specialisation, unproductive
lines can be eliminated and wastage of resources avoided. In other words,
resources are channelised 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.
3. Equality of prices
3. 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
expenses.
4. 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.
5. Ensures quality and standard goods
5. Ensures quality and standard goods
Foreign trade is highly competitive. To
maintain and increase the demand for goods, the exporting countries have to
keep up the quality of goods. Thus quality and standardised goods are produced.
6. 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.
7. 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.
8. Facilitate economic development
8. 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.
9. Assitance during natural calamities
9. Assitance 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.
10. 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.
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