International Trade Contribution to Development

RUNNING HEAD: DEVELOPMENT ECONOMICS
0
International Trade
Contribution to
Development
[Year]

International Trade Contribution to Development
1
Introduction
International trade has been part of development for centuries, because it has the ability to be
an important force for reducing poverty at the global level by stimulating growth of economy,
reducing prices, creating jobs, acquiring new technologies and increasing the variety of goods
for consumers (McGovern,2018). Development and growth of any economy mainly depend
on the international trade and most of the contribution mainly in developed countries are of
international trade. It is experienced by most of countries that appropriate trade policies lead
to an educated work force, infrastructure development, productive employment, women
empowerment, food security and reduction in inequality (Viner,2016). This essay focuses on
the contribution of international trade in development and growth of economy. In order to
understand the concept of international trade and its contribution to development different
theories are used and some examples are given with proper implication.
Literature Review
According to International trade is considered as the exchange of services and goods between
countries as per the trade policies set at the global level and between different countries.
Trade at the global level provide opportunities to countries and consumers to exposed to
services and goods that are not available in their countries (Low,2016). The concept of
International trade was recognized by David Ricardo and Adam Smith. But some economists
on the other side argue that trade at global level across countries prove to be bad for smaller
nations and might impact negatively on the growth of smaller nations on the world stage.
Dean (2017), said that international trade gives rise to the world economy, because it impact
on demand and supply, prices of goods and services, and all these are affected on the basis of
external forces at the global level. The concept of international trade includes two broad
terms that are exports and imports. According to (Low,2016), trade is a crucial part in the
development and survival of countries that have limited resources such as Hong Kong and
Singapore or countries that have plenty of resources such as West Asian regions and the
Caribbean. However, with diversified resources such as the US, India, the UK and China.
Hence, involvement of countries in trade is a necessity in order to ensure de3velopment and
growth of countries (Hazari,2016).

International Trade Contribution to Development
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Figure 1: Relation between trade and economic growth at the global platform
Source: (Burstein et.al,2019).
Theories on Trade and Environmental sustainability
International trade become significant part of development of countries because of free trade
policies. According to Adam smith’s (1986), the three important elements in development
and prosperity of nation are enlightened self-interest, limited government interference and
free market economy. Trade theory given by Smith emphasized on the free market principles
by allowing free trade across countries and by keeping taxes low. He described that trade
between countries give an absolute advantage as production takes place in one country with
limited resources that will contribute in the development of the country as domestic
production increase, demand for product or service increase and that leads to more
production and consumption at the global level, thus it contribute to the growth and
prosperity of nations (Milward,2019).
Further, Mercantilism trade theory is another theory that was popularized by Adam Smith.
This theory emphasized on encouragement of exports by a nation and discouragement of
imports in the country in order to increase the wealth of the country. Moreover, increasing
wealth is an indicator of development and prosperity of nation. The criticism of this theory
was that it only benefitted to one country.
On the other side, David Ricardo provided a theory of comparative advantage that focus on
the aspect that if one country has absolute advantage and other country has no absolute

International Trade Contribution to Development
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advantage than this resultant in benefit and development of both countries. A country can
produce some commodities but not all the commodities, due to that significance of
international trade develop. The free market and trade leads to fulfillment of demand of
people, adoption of new technologies, development of infrastructure, more foreign reserves
and all that contributes positively to the development of nation and country.
There are many ways in which foreign trade or international trade contribute in the economic
growth that are; the role of international trade is to know ways by which procurement of
capital goods become cheaper, import of capital goods is the first stage of development.
Further, international trade increase flow of technology in the country which resultant in
efficiency in operations and short-term multiplier effect. The encouragement of foreign trade
is essential because it generates force for competing in the global markets through exports
and this also ensure efficient allocation of resources.
Moreover, exports by countries resultant in efficient utilization of capacity that leads to
economies of scale, change in demand, different production pattern, and fuller use of new
technologies. The trade also plays part in the welfare of workers as more exports leads to
inflow of foreign currency in the nation that leads to increase in wages as dependency of
companies on workers become high. At last, trade contributes majorly in poverty reduction in
developing countries as employment opportunities increase that leads to equal distribution of
wealth in the country that somehow reduce poverty in the country (Milward,2019).
Hence all the factors that are stated above contribute independently on economic growth but
these factors are all depend on the international trade. Thus, the role of international trade in
development can be measured on the basis of above factors. In a nutshell, international trade
ensures growth through economic welfare and by encouraging better utilization of factors
endowments of different nations and by making goods available to people from efficient
supply sources.
International trade contribution
The role of international trade in development of economy can be analyzed by looking into
the impact that exports and imports of services crested on developed and developing
countries. Firstly, looking into the role of international trade and policies that the US
implemented in order to boost its trade in the country. Further, the impact of policy
development and implementation on the economy and growth has been analyzed.