International Trade

It is an advantage for countries to be self-sufficient, but there are reasons why trade must take place between nations.

Reasons for International Trade

(a) Lack of certain natural resources to produce essential goods. Oil which is important to economic life must be imported into countries that do not posses that natural resource.

(b)Lack of capital, technology and specialist labour to manufacture certain goods on a large scale. For example, Caribbean countries import machinery equipment and vehicle.

(c)Differences in climatic conditions, e.g. many tropical countries import grapes and strawberries as these produce need cool climates to survive.

(d)Differences in the cost of production between countries.  This reason is based on the principle of comparative advantage which states that benefits will be gained from trade if countries produce goods in which they have a relative advantage.  Therefore, if two countries both produce cars and coffee but each is more efficient at producing or produces either at a lower opportunity cost either car or coffee, then trade can take place. The country that is more efficient at producing coffee should put all its resources into coffee and import cars from the other country that is efficient in producing cars.

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