Question

How do differences in national resources become the basis of international trade? Explain with examples.

Answer 1

Differences in national resources serve as the foundation for international trade because different countries have varying natural resource endowments such as land, water, minerals, forests, and so on. These resources influence the manufacturing capabilities and costs of various commodities and services in different countries. As a result, countries seek to specialize and trade in items and services that they can produce more efficiently or at a cheaper cost than other countries by leveraging their rich or superior resources. For example, Saudi Arabia has a big oil reserve, which it exports to countries with little or no oil. India has a vast and rich territory, allowing it to produce and export agricultural products such as rice, wheat, and tea. Australia has a large resource of iron ore that it exports to countries that want it for steel manufacture. These are some examples of how national resource disparities constitute the foundation of international trade.