XII Banking - Question 32 - International Trade

Q.32. Why do International trade take place?

OR

What are the bases for international trade?

Some of the reasons that why do trade between different countries occur are discussed under the following heads.


NATURAL ENDOWMENTS

Differences in advantages of trade to different countries may arise because of natural reasons like geographical and climatic conditions. This lead to territorial division of labour and localization of industry. This different countries specialize in the production of different things.


HUMAN CAPABILITIES

People in some countries are physically more sturdy where as in others they are intellectually superior. Some have greater skill and dexterity thus the countries. Which do not possess these qualities try to share with them.


STOCK OF CAPITAL

Some countries have large stock of capital goods like U.K, U.S.A, etc. These gives an opportunity to the underdeveloped countries or those which lack these capital goods to exchange or trade them through the channel of distribution internationally.


SPECIALIZATION IN PRODUCTION

A country may have a comparative cost advantage in production in more than one commodity over other countries but produces only one commodity for the sake of specialization. It helps in improving the quality of production to a great extent.