Importance Of Trade For An Economy

In this article, we will be discussing the importance of trade for economies. There are over two hundred countries in the world. Each of these countries is ranked according to certain criteria. Most first-world countries include places that have a large amount of economic growth. These countries can provide their citizens with an adequate standard of living. Several different sectors within a county impact its status. These factors determine if it is a developed, developing, or less developed country. 

These sectors may include but are not limited to the health sector, economy and education. The economy of a country is perhaps the most important out of all these sectors. It includes human resources, natural resources, and physical capital. The economic growth of a country depends upon several factors. The consumption, investment, government expenditure, and net exports. This shows that for a country to grow economically it is important to increase the factors that contribute to it, such as trade. 

While imports and exports exist in a country, most of these facilities are usually privatised. This means that even though the country is majorly exerting or importing, it will not be counted towards economic growth. If these private imports and exports are documented then the government or state can tax them and this will lead to economic progression. For example, if an FBA product sourcing company is working, it should be doing so as a registered company so that the value of exports through it can add to the overall gross domestic product. Below are the reasons why trade is so important and how it can be increased. 

Importance Of Trade

1: Competitive Global Economy

For global economic progression to take place, trade is essential. This global race to exceed economic growth encourages developing countries. They then take measures to promote their economies. These may look like more utilization of resources already present in the country. Efficient allocation of resources is also essential for the progressive and sustainable growth of an economy. When global economies increase trade extensively, they form trade laws. Most of these trade laws are set to make trade more relaxed between countries. 

Trading blocs are also formed such as NAFTA. These enable a trade to become easier. Fewer taxes and tariffs are applied. If someone in one country wishes to import car parts such as headlights and they are in the same block as another country providing them, they may be able to import them with fewer tariffs. The car headlamp suppliers will then be able to provide their products across countries. This will increase their production. Which will then increase their profit and the market for their products. All in all, this will promote production. It will promote trade. All this will then contribute to the economic growth of the country. 

2: Better Relations 

As trade between countries increases, their relations become better. If trade deteriorates, so does their communication. When barriers to trade, such as taxes and quotas are decreased then more countries trade. Therefore it can be said that trade acts as an invisible power holding different countries together. Most countries that begin to establish relations with other countries do so by starting a trade.

Countries may start the trade by trading smaller products such as clothing products or furniture from a table chair company. After a certain period, they may also start trading larger products such as car parts, or raw materials. Most of the developing countries are agriculture-based countries. They export from their primary and secondary sectors. They export more raw materials such as wheat or cotton. Developed countries export more products from the tertiary sector. These include technology or hardware. 

3: Specialization Of Markets

When a country majorly begins to trade the same product with several different countries, it becomes specialized in the production of the product. When a country is largely trading agricultural products, most of its economy will depend on them. Therefore they will allocate their resources in such a way that the production of the product is most efficient. Production will also take place on a larger scale. Mass production will then have quality control checks. Since the product is being exported it must be of the best quality. If it is not, countries always have the option to change their supplier country. Many economies cripple when they no longer ensure the quality of their goods, as no one buys them. Therefore while it is important to establish a market, it is equally important to sustain that market. 

Importance Of Trade – Conclusion

Trade is the most important aspect of the global economy. It helps sustain and build relations between countries. It improves the standard of production. Trading blocs make it easier for countries to trade. Fewer restrictions and barriers make it easier to trade. It is important to encourage trade so that less developed and developing economies can begin to grow. 

Muhammad Saad Khan

Experienced Finance Officer with a demonstrated history of working in the marketing and advertising industry. Skilled in Microsoft Word, Income Tax, PowerPivot, Management Reporter, and Microsoft Dynamics GP. Strong finance professional with a ICMA (Part Qualified) focused in Accounting and Finance from Institute of Cost and Management Accountants - ICMA. I write finance related article in my free time on TrendMut.

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