Trade Gains Nature

International trade confers a number of gains on the participating countries. Particularly, international trade, based on the principle of comparative costs, leads to international specialization or territorial dividend of labour. International specialization is advantageous because:

(1) The production of different commodities needs different types of resources (factors of production) in different proportions.

(2) The different regions of the world are differently endowed with various kinds of economic resources.

(3) The international mobility of factors such as land, labour and capital is extremely limited.

Obviously, therefore, when it is difficult for the resources to move between nations the goods which “embody” these resources should more through trade, for the optimum allocation of world resources. It goes without saying, thus, that international trade is beneficial to the trading partners. Of course, countries are not obliged to trade, but they do trade because they gain from international division of labour and specialization makes it possible for economic resources to be used more efficiently in each trading country for greater production of each variety of good. Each trading country gains when the total output increase as a result of division of labour and specialization. These gains are in the form of more aggregate production greater magnitude of kinds and varieties and greater diversity of qualities of goods that become available for consumption in each country as a result of trade. Malthus held that the gain form trade consisted of the increased value which results from exchanging what is wanted less of what is wanted more and that internaitol trade by giving us commodities much better suited to our wants and tastes than those which has been sent away has decidedly increased the exchangeable value of our possessions our means of enjoyment and our wealth.

We may now briefly enlist the gains resulting from inferential trade:

1. International specialization and geographical division of labour lead to optimum allocation of world resources making it possible to have the most efficient use of them.

2. Increase in the exchangeable value of possessions means of enjoyment and wealth of each trading country.

3. As Ohlin states, the disadvantage of disproportionate geographical distribution of production resources are mitigated by international trade. In other words, the loss attributed to the immobility of factors is overcome by the product movements between the trading countries.

4. Foreign trade of a country widens the size of market and thereby helps in reducing the risks involved in huge investments undertaken for the growth of home industries. It also enlarges the scope for large scale production. The economies of scale so realized would reduce the cost of production consequently goods may cheaply be available to domestic consumers than otherwise.

5. Under international trade each country will get more of each variety of goods, more varieties and qualities of goods to consume.

6. International trade causes enlargement of world’s total output.

7. International trade, thus, leads to an increase in the world prosperity and welfare of each handing nation. The livings standards of trading countries in turn improve. Hence, the world at large becomes a happy world.

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