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ADVANTAGES OF INTERNATIONAL TRADE
- An increase in output: International trade makes countries to specialize, and specialisation will lead to increase in output of goods and services in the world.
- Consumption of variety products: Because of international trade, countries can consume what they cannot produce. A great variety of different products are imported in each country today from foreign markets.
- Competition is encouraged: Free trade exposes home industries to competition with industries in other countries. This results in efficiency, production of high quality goods and also low prices of goods and services.
- An increase in the standard of living: International trade has also improved the standard of living in most countries. This is because it comes with the consumption of variety products and high quality goods.
- An increase in the size of the market: Because of international trade, producers at home have the opportunity to sell their products in large markets abroad. This also encourages larger scale production leading to economies of scale.
- Increase in job opportunities: International trade also comes with the creation of jobs. Jobs are created in the export, import and transport industries. It also comes with the growth of seaports and airplanes which are sources of employment.
- Transfer of Technology: New methods of production, new product, new and more performing methods of management, new machines can be imported from one country to another. All these will encourage economic growth in an economy.
- Increase in government tax revenue: Some protection on international trade can be seen as a source of revenue to the government. For instance, custom duties are indirect taxes that the government uses in raising revenue. Custom duties are indirect taxes that are used in protection of international trade.
DISADVANTAGES OF INTERNATIONAL TRADE
- Over dependency: international trade makes a country to depend on other countries for the supply for some commodities. This can lead to over dependency which is very risky. The supply of these goods can stop during time of crisis or war.
- Consumption of harmful products: There is the possibility of importation and consumption of harmful products from other countries when international trade is free. This includes harmful drugs and arms which can only lead to increase in crime waves in country.
- Rivalry between countries. There is a tendency for rivalry to occur between trading parties. This may come from competition.
- Dumping: This is the act of selling goods cheaper abroad. When this happen in international trade, foreign industries will capture home market and create monopoly power. This means that dumping dumping is a disadvantage to the importing countries.
- Over-production: Specialisation in international trade leads to an increase in production. These increases in output can lead to the accumulation of unsold stocks if there is a fall in demand in the foreign markets. Over-production is when firms cannot sell all what they have produced.
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