International Trade And The World Economy
International trade and the world economy are two inseparable entities and need to be addresses simultaneously. Hence, an international trade system ought to be designed, which meets the requirements of the changing world economy.
Trends manifested in international trade and the world economy:More and more companies are making their global presence felt by a strong network. This has given rise to diversification in international transactions. It may include direct investments, trade and services. There is an increase in economic activities in all nations.
This has necessitated the introduction of certain guidelines, which govern international transactions. In the absence of these guidelines, there could be disharmony among the trading nations.Due to international capital movements, the lacunae prevailing in the economy of a particular country are revealed.
This may affect the economy of other countries as well. This may happen through external assets, trade and investments.
Studies reveal that, if the equilibrium in the world economy is disturbed, it could lead to dire consequences like-
Pressures from protectionist; it could upset the financial as well as the monetary systems and negatively impact the international trade system.
Key factors in international trade and the world economy:
- International trade can be referred to as successful, only when the trading nations are equally benefited. It is obligatory for a particular nation to have more production output for exporting goods to another nation.
- In the absence of trade, the relative prices of goods differ from one country to another. The relative prices, then indicate the comparative advantage.
- When there is trade, relative prices of commodities are equal. This is further ensured by arbitrage.