Importance of foreign trade

There is no nation in the world that does not rely on imports. In other words, no country is self-sufficient to produce all the products that its citizens need. This makes foreign trade, one of the essential requirements of any country. In the same way, if a company produce any product in excess, then it exports those products to other nations.

Thus, a nation produces commodity that they have a relative lead while trading in other goods. Such exchange of goods by nations is regarded as the “foreign trade”. Let us learn more about the significance of foreign trade on a nation in detail.

importance of foreign trade

Benefits of foreign trade for a nation

Improved product quality: Another notable benefit of foreign trade in a country is increase in the standards and quality of products. This happens due to use of advanced and innovative technology-based appliances. Getting these superior-quality products at low price is an icing on the cake.

Controls fluctuation in prices of commodities: Foreign trade is seen to be helpful in controlling the price-level of goods and services within the nation. Selective indulgence in trading of goods is the key to achieve this benefit. If the cost of any good or service increases due to scarce supply, then a country can import such goods or services to maintain a balance in the price-level.

In the same way, if the cost of any commodity increases due to its increased supply in local market, then a country can export the excess production to other nations to raise its price in the country. In this way, fluctuation in the goods and services can be managed by foreign trade.

Benefit from knowledge transfer: The host country is greatly benefited by the transfer of managerial and technical knowledge to them. In this way, foreign investors prove to be advantageous for both developing as well as the undeveloped nations. Host country is benefited from the development and training of workforce, and implementation of cheap operational methods and techniques in the business.

Improves relations among countries: Foreign trade also strengthens the relationship of a nation with other nations. Similarly, pleasant relations promote effective trade relations. It assists in restoring political peace and boosting economic integration among nations.

Increases government revenue: Another important advantage of foreign trade is that it increases government revenue in the way of corporate taxes. Increase in export and decrease in import lower trade deficit in a nation.

Encourages flow of foreign capital: Foreign trade results in flow of foreign capital in the country that assists in expansion of job sector. In this way, it benefits a country in increasing the investment and income in the country.

Promote countries to produce low price goods: Foreign trade enables nation to manufacture commodities that have a relatively cheaper price than other goods. It causes less expenditure in production of such goods. If all nations produce those goods that have less comparative price, then more goods will be available in the nation at a lesser cost.

Enhances scope of market: Foreign trade helps in improving the scope of market. This happens due to foreign demand and domestic demand for any product. This leads to bulk production of goods. Increase in the manufacture of commodities, results in reduction in average price of goods.

Availability to varied type of products: Foreign trade assists people to obtain different types of goods both in terms of quantity and quality.

Aids in economic progress of a nation: Another important benefit of foreign trade, is that it results in economic development of a developing nation. Foreign investment aids in economic progress of a nation by bridging gaps in savings, trading and technology.

Without foreign trade, obtaining deficient commodities like petroleum products would have been tough and expensive. Due to increase in price of these scarce products, it would become hard for a nation to meet the requirements for this product. It will also diminish the economic progress of the country.

Due to natural calamities, certain consumer products become scarce. During such contingency situations, the only alternative left with the nation is to import these commodities from abroad and maintain stability in prices. Besides stabilizing economy, foreign trade also assists in meeting the needs of people to obtain their commodities.

Foreign trade stimulates economic progress in the nation. It assists in optimal use of resources of different nations. With increase in foreign investment, there is increase in the number of employment opportunities. This assist in efficient use of manpower and other form of resources. Multinational firms assist in progress of domestic suppliers too.

Also read: Importance of Free Trade


These benefits clearly show the significance of foreign trade in the economic expansion of a nation.

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