DEFINITION OF INTERNATIONAL TRADE
International trade is the trade between countries in the world. Equally international trade can also be defined as the voluntary exchange of goods, services, assets or money between residents of two countries. These residents may include persons or organizations.
It can be bilateral trade or multilateral trade.
Where bilateral trade is an agreement between two countries to promote trade and commerce between them which is mutually beneficial for economic development and stability. For example, trade between Kenya and India
Multilateral trade is the exchange of goods and services between three or more nations
REASONS WHY COUNTRIES ARE INVOLVED IN INTERNATIONAL TRADE
- Factor Endowment
Different countries trade in different goods and services and thus will enable a country to receive or get what they cannot produce.
- Different prices
The key objective why countries are involved in international trade is differences in prices of goods and services with reference to cost of production. In such a case, a country can import the goods which it cannot produce at a cheaper cost domestically.
- Absolute Advantage
International trade occurs as a result of absolute advantage where a country will specialize in production of different goods and services and as a result of specialization, the countries concerned will exchange the surplus. For example, Kenya has specialized in the production of tea which it exports to other countries in the world like the United Kingdom. United Kingdom exports cars and machinery to Kenya due its specialization in cars and machinery manufacturing.
- Foreign Exchange Currency
Countries do involve themselves in international trade in order to obtain foreign currency. When a countries currency is used in international trade the currency of the country becomes stronger due to exchange of currencies. For example, if Kenya exports tea to the United States of America and USA pays in dollars Kenya would receive foreign exchange benefits.
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