International Trade: Definition, Benefits, Types and Supporting Factors

international trade

Definition of International Trade

What is the definition of international trade (international trade) and what are the benefits for the economy in a country? Those who study economics, of course, are quite familiar with this topic because it is discussed quite often.

International trade is an interaction between countries in the form of buying and selling of goods and services based on mutual agreement. International cooperation in the field of trade is not something that has just started but has existed since the Middle Ages.

Economic relations between these countries include three forms of relationship, including:

  • Exchange of results or output from a country with another country, or what we know as international trade
  • Relationships in the form of accounts payable between countries
  • Exchange or flow of production or means of production

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

International Trade in General

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

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

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

The two parties can be between individuals (individual to individual), between individuals and the government of a country, or between governments from each country.

Thus trade between countries allows the occurrence of:

  • Trading or exchanging goods and/or services between countries
  • Cooperation in the field of international economies around the world
  • Influence on the development of exports and imports and the Balance of Payment / International Balance of Payments of a country
  • Exchange and expansion of the use of technology to accelerate the economic growth of the countries involved in it
  • The movement of resources through national borders, both human resources, natural resources, and capital resources

International Trade Benefits

After understanding the meaning of international trade, of course, we also need to know what its benefits are. The existence of international cooperation in the trade sector can provide several benefits and benefits that can be obtained from each country that cooperates in the trade sector.

These benefits include:

  • Can obtain goods or services that cannot be produced alone due to differences in natural resources, human resource capabilities, technology, and others.
  • Can expand the market to increase the benefits of specialization
  • Enables the transfer of modern technology to understand more efficient and modern production techniques in terms of management.
  • Can accelerate the economic growth of a country
  • Increase foreign exchange from exports
  • International trade can create jobs in a country
  • Establish a friendship with other countries
  • Increase the distribution of a country's natural resources 

Drivers of International Trade

International cooperation in the trade sector occurs because of several driving factors that require a country to cooperate in the trade sector. Because each country cannot fully meet the needs of its own country without resources from other countries, whether from natural resources, human resources, capital, or in terms of technology.

The following are some of the factors driving the emergence of international trade:

1. There is a free market

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

The free market is needed to increase cooperation between countries which has the opportunity to increase state revenue. Economic freedom triggers individuals and groups to compete to increase markets and increase production.

2. There are differences in geographic conditions

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

For example, previously spices were only found in tropical regions such as Indonesia so that Indonesia became the largest spice supplier in several western countries. Each country cannot meet all the required resources so it is necessary to make exchanges with other countries.

3. Increasing the Development of Technology and Information

Currently, interacting 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 triggers each country to increase its production to be marketed by other countries with the assumption that that country cannot provide these goods or services.

4. There is a difference in technology

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

Likewise, if a country is only advanced in technology without a supply of natural resources, then it needs help 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 generate a wider market and more income than if it was only produced domestically. So that large-scale production can certainly save costs for production (fixed costs).

Types of International Trade

There are several types of international trade that are carried out between countries and groups of countries. Referring to the definition of international trade above, some of the types are as follows:

1. Export and Import

The most common form of international trade. There are two ways to export, namely regular export (through applicable regulations) and export without L / C (goods may be sent through a permit from the Ministry of Trade).

2. Barter

Currently, bartering or exchanging goods for goods is still often done in international trade. Types include direct barter, switch barter, counter purchase, and bay back barter.

3. Consignment

Consignment is sales by sending goods abroad where there are no specific buyers abroad. Sales can be made through the free market or trade exchanges by auction

4. Package Deal

Trade is conducted through trade agreements with other countries.

5. Border Brossing

Trade arising from two countries that are close to each other to make it easier for its inhabitants to transact with each other.

International trade is an important agenda of a country not only for commercial gain but also in terms of cooperation between nations.

Conclusion

The above is an explanation of the definition of international trade, its benefits, types, and driving factors. Hopefully, this article adds to our insight into the benefits of international cooperation and matters related to this topic.

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