Global trade allows wealthy countries to use their resources for example, labor, technology, or capital more efficiently, different countries are endowed with different assets and natural resources; land, labor, technology etc.
Trade is central to ending global poverty. Countries that are open to international trade tend to grow faster, innovate, improve productivity, and provide higher income and more opportunities to their people. Open trade also benefits lower-income households by offering consumers more affordable goods and services. Trade has been a part of economic development for centuries, it has the potential to be a significant force for reducing global poverty by spurring economic growth, creating jobs, reducing prices, increasing the variety of goods for consumers, and helping countries acquire new technologies.
Global trade, also known as international trade, is simply the import and export of goods and services across international boundaries. International trade is the exchange of capital goods and services across international boundaries or territories. In most countries, such trade represents a significant share in GDP (gross domestic product).
Goods and services that enter into a country for sale are called imports. Goods and services that leave a country for sale in another country are called exports. For example, a country may import wheat because it doesn’t have much land, but export oil because it has oil in abundance.
A fundamental concept underlying global trade is the concept of comparative advantage, developed by David Ricardo in the 19th century. In a nutshell, the doctrine of comparative advantage states that a country can produce some goods or services more cheaply than other countries. In technical terms, the country is able to produce a specific good or service at a lower opportunity cost than others.
An opportunity cost is the benefit one gives up in making an economic choice. The classic example is guns and butter domestic investment over defense spending. The more guns you produce, the fewer funds are available to invest in public schools and infrastructure, for example. The more you invest in the domestic economy, the less you can spend on defense.
