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International Trade: Definition, Benefits, Types and Driving Factors

What is the definition of international trade ? and what are the benefits for the economy in a country? For those who learn about economics, surely they are quite familiar with this topic because international trade always occur in the common discucssion.

Definition of International Trade

International trade is an interaction between countries in the form of buying and selling goods and services on the basis of mutual agreement. International cooperation in the field of trade is not something that has just begun, but has been around since the Middle Ages.

Economic relations between countries include three forms of relationships, including:
  • Exchange of results or output from a country with another country, or what we know with international trade
  • Relations in the form of accounts payable between countries
  • Exchange or production flow or production facilities

One of the objectives of international trade is to increase GDP (Gross Domestic Product) or the total value of production of goods and services in a country for one year. The impact of international trade can be felt in terms of social, political and economic interests to help drive the progress of industrialization, transportation, globalization and the presence of multinational companies.

Trade can be interpreted as a process of exchange that occurs on the basis of mutual agreement from the parties involved in it. Countries in the world have not been able to produce all goods for their own needs, they must receive assistance from other countries.

This process then becomes a trade activity between countries, or export-import activities. Trade between countries is called international trade.

From this explanation, it can be concluded that the international trade is activities of buying and selling carried out by one country and another, where this occurs as a result of limited resources available in that country. Trade between countries plays an important role in meeting the needs they cannot be produced in that country, whether it is due to limited natural resources, human resources, capital, or skills.

Both parties can be happen between individuals (individuals and individuals), between individuals with the government in a different country, or between governments from each country. Thus trade between countries allows for:
  • Buy and sell or exchange goods and or services between countries
  • Economic cooperation between countries throughout the world
  • Influence on the development of exports and imports and the Balance of Payment / International Balance of Payments (NPI) of a country
  • Exchange and expansion of the use of technology so that it can accelerate the economic growth of the countries involved in it
  • Movement of resources through national borders, both human resources, natural resources, and capital resources

Benefits of International Trade

After understanding the meaning of international trade, of course we also need to know what the benefits are. The existence of international cooperation in the field of trade can provide several benefits and benefits that can be obtained from each country that cooperates in the field of trade. These benefits include:
  • Can obtain goods or services that cannot be produced on their own due to differences in natural resources, human resource, technological and other capabilities.
  • Can expand the market for the purpose of increasing profits from specialization
  • Enables the transfer of modern technology to understand production techniques that are more efficient and modern in terms of management.
  • Can accelerate the economic growth of a country
  • Increase the country's foreign exchange from exports
  • International trade can open jobs in a country
  • Making friends with other countries
  • Increase the spread of natural resources of a country

Driving factors for international trade

International cooperation in the field of trade occurs because of several driving factors that require a country to establish cooperation in the field of trade. Because every country cannot fully meet the needs of its own country without the resources of other countries, it can be from natural resources, human resources, capital and in terms of technology. The following are some of the factors driving the emergence of international trade:

1. The existence of a free global market

Economic freedom or liberalism has begun to be instilled in international trade. Anyone has the right to increase and expand their market to sell products across countries.

Free markets are needed to enhance cooperation between countries that have the opportunity to increase state revenues. Economic freedom becomes a trigger for individuals and groups to compete to add markets and increase production.

2. There are differences in geographical conditions

Every country has a geographical situation that is different from other countries which causes differences in the resources produced.

For example, spices were only found in tropical regions such as Indonesia, so Indonesia became the biggest supplier of spices in several western countries. Every country cannot fulfill all the resources needed so it needs to exchange with other countries.

3. Increasing Information and Technology Development

Now, to interact with other countries does not have to be face to face, because all communication can now be done with internet-based information technology.

The development of digitalization and communication equipment has triggered each country to increase its production to be marketed by other countries with the assumption that in that country it cannot provide the goods or services.

4. The existence of technological differences

Not only differences in natural resources, but differences in human resources can also cause differences in capabilities in terms of technology. This technology difference causes a country that can only produce raw goods must export to other countries to be processed and imported back to their country at a higher price.

Vice versa, if a country only advances in technology without the supply of natural resources, it needs assistance from other countries. This is the role of a mutually beneficial form of international trade

5. Save costs

International trade is considered to be able to produce a wider market and more income than if only produced domestically. So that production on a large scale certainly can save costs that must be spent on production (fixed cost).

The above is an explanation of the notion of international trade, benefits, and driving factors. Hopefully this article can explain you into the benefits of international cooperation and matters relating to the topic.
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