Can You Help Me Explain Indirect Benefits Of International Trade?

Foreign trade helps the developing countries to exchange domestic goods having low growth potential for foreign goods with high growth potential like machinery, capital goods, essential raw material etc. Thus foreign trade enables less developed countries to import capital, equipment etc. from developed countries, and make the process of development faster.

Foreign trade posses an education effect. Developing countries lack in critical skills, which are a greater hindrance to development. Foreign trade tends to overcome this weakness. The importation of ideas, skills and know how is a great stimulus to technological progress in less developed countries. It provides them an opportunity to learn from the successes and failure of the advanced countries.

Foreign trade also provides basis for the importation of foreign capital in less developed countries. The volume of foreign capital depends, among other factors, on the volume of trade. The larger the volume of trade, the greater will be the ease with which a country can import foreign capital. The use of foreign capital for import substitution, export promotion, public utilities and manufacturing industries is beneficial. Thus foreign capital helps in increasing employment, output, and income and also smoothen the balance of payments and inflationary pressures.

Last but not least, foreign trade benefits and less developed countries indirectly by fostering healthy competition and checking inefficient monopolies.

Add Comment

Report