Differences between domestic trade and international trade



     Domestic trade is also known as internal trade. It involves the exchange of goods and services within the national boundary. International trade is also known as foreign trade or external trade and it involves the exchange of goods and services among countries.

      The two types of trade differ in the following ways:

(i) While domestic trade takes place within the national boundaries, international trade takes place across national boundaries.

(ii) Domestic trade involves the use of one currency but international trade involves the use of more than one currency and may therefore create foreign exchange problems.

(iii) There are no trade restrictions such as quota, import licensing, etc. In domestic trade, while international trade is subject to trade restrictions.

(iv) Domestic trade does not involve a balance of payments problems while international trade may involve a balance of payments problems.

(v) Domestic trade is not foreign exchange garner, while international trade helps a country to earn foreign exchange which is used to Boost finance imports.

(vi) Domestic trade is not usually subjected to political manipulations while political manipulations may exist in international trade.

     Why countries engage in Countries have to produce certain commodities and exchange them with other commodities produced by international trade. Each country produces those in which it has a Comparative cost advantage and exchanges them with those in which it has a comparative disadvantage.

Differences in endowments create the need for
trade are:

(i) Differences in climate and soils: Differences in natural resource endowment, e.g. Mineral resources: Some countries are endowed with mineral resources that are not found in other areas, crude oil is produced in large quantities in Nigeria but is not found in commercial quantities in many other West African countries.

(ii) Variations in available capital stock: Some countries possess adequate stocks of capital while others do not have adequate capital for less capital stock to borrow capital or import
exploiting the available resources. Those with or goods that they do not produce.

iv) Variations in levels of industrial development: The industrialized countries export their surplus commodities to the less industrialized ones.

(v) Variations in the level of technical skills: Countries with advanced technical skills in the production of certain commodities can produce certain goods at cheaper rates e.g. Switzerland for watches, France for wines.

(vi) The need to satisfy certain wants: A country has to engage in trade with another because certain goods (especially if they are strategic) are not produced in sufficient quantities at home. It, therefore, imports what it does not produce in sufficient quantities or what it does not produce at all, but is required for the survival of the economy.


          Advantages (merits) from international Trade
(i) Increase in quantity and variety of goods and
services: With specialization and exchange,
total world output and consumption increases.

(ii) Expansion of market: A country’s market is expanded by having access to other countries’ markets.

(iii) Source of foreign exchange: By exporting its goods and services, a country can earn foreign exchange.

(iv) Acceleration of economic development: Trade facilitates the inflow of foreign capital for socio-economic development.

(V) Increased utilization of resources: Increased efficient utilization of resources leads to a higher level of output.

(vi) Encouragement of competition: Foreign competition is introduced through trade. There is increased research to produce competitive quality goods for the world market and domestic consumers.

(vii) Increased technical knowledge and gaining of
ideas: The less technically advanced countries gain technical knowledge from the advanced countries.

(viii) Creation of employment opportunities: Many people are engaged in production for the exporting and importing of commodities.

       Disadvantages (demerits) of international trade
(i) Over-dependence of countries: Excessive specialization leads to too much dependence which is dangerous in times of crisis between countries.

(ii) Unbalanced growth and development: Some sectors are developed at the expense of others. The tendency of third world countries to produce primary products has stifled industrial growth.

(iii) Over-production: Excessive specialization could lead to over-production. This may discourage producers because of the lower prices received for imports. It could lead to dumping, i.e. the process whereby a commodity is sold in a foreign market at a price lower than the producer’s cost of production.

(iv) Unemployment: Excessive importation of foreign goods may stifle the growth of domestic
industries and create unemployment problems.

(v) Importation of dangerous commodities and
ideas: Dangerous commodities such as cocaine,
etc, and indecent ways of dressing and behavior
may be imported. These may aggravate the rate
of crime.

(vi) Importation may retard the growth of infant
industries and thus frustrate the industrialization
program of a government.

Read about the distinction between economic growth and economic development.

Leave a Comment