Question

What factors act as a basis of international trade? Discuss.

Answer 1

International trade is the result of specialization in production. These are the following factors that act as a basis of international trade.

1. Difference in national resources: The world’s national resources are unevenly distributed because of differences in their physical makeup, i.e. geology, relief soil, and climate.

• Geological structure: It determines the mineral resource base and topographical differences ensure diversity of crops and animals raised. Mountains attract tourists and promote tourism.
• Mineral resources: They are unevenly distributed in the world. The availability of mineral resources provides the basis for industrial development.
• Climate; Climate influences the type of flora and fauna that can survive in a given region. It also ensures diversity in the range of various products.

2. Population factors: The size, distribution, and diversity of people between countries affect the type and volume of goods traded.

• Cultural factors: Distinctive forms of art and craft develop in certain cultures which are valued the world over.
• Size of population: Densely populated countries have a large volume of internal trade.

3. Stage of economic development: At different stages of economic development of countries, the nature of items traded undergoes changes.

4. Extent of foreign investment: Foreign investment can boost trade in developing countries that lack in capital required for the development of mining, oil drilling, heavy engineering, lumbering, and plantation agriculture. The industrial nations ensure the import of foodstuffs, minerals and create markets for their finished products.

5. Transport: In olden times, the lack of adequate and efficient means of transport restricted trade to local areas. Only high-value items, e.g. gems, silk, and spices were traded over long distances.