Question

Answer the following question.
How has foreign trade been integrating markets of different countries? Explain with examples.

Answer 1

Foreign Trade leads to the integration of markets around the world in the following ways :

1. Exports and imports - Producers can make available their goods in markets beyond domestic ones via exports. Likewise, buyers have more choice on account of imports from other countries. For example, Japanese electronic items are imported to India and have proved to be a tough competition for less-technologically-advanced companies here.
2. Opening of trade - The opening of trade creates an opportunity for producers to reach beyond the domestic market, by selling their goods within the country as well as around the world.
3. Greater choice available to consumers - The consumers have access to goods produced in another country. Consequently, they have a wider choice of goods, with the option of exercising their choice of one over the other. In a closed domestic market, this situation would not be possible.
4. Supply chain linkages - Raw materials produced in one country are exported, processed, and used for manufacturing in another country. This builds up links in a supply chain that stimulate demand in international markets.
5. Price equilibrium - The prices of similar goods in the two markets tend to become equal, in order to survive in the competition.
6. Competition between Producers - Producers in different countries and markets compete with each other for access to consumers.
7. Balance of payments – Countries may choose to make payments in different modes to offset any imbalances in exports and imports on account of trade with a particular country. For example, current international sanctions against Iran have resulted in the inability of the Indian government to pay for oil imports from Iran in dollars. As a result, the payments are now sought to be made in either Indian rupees or through the export of goods. Infrastructure investments are also mooted to pay for these imports.