PAKISTANS EXPORTS

Textiles
Rice
Leather goods
Sports goods
Chemicals

PAKISTANS IMPORTS

Petroleum products
Machinery
Transportation equipment
Oil
Tea

INTERNATIONAL TRADE

DESIRED LEARNING OBJECTIVES

In this chapter, well study:Importance of International Trade.

Difference in International and Domestic
Trade.
Reasons for international trade.

What are the economic forces that lie

behind international trade?

Trade Promotes Specialization

Specialization increases productivity

and

INTERNATIONAL VS. DOMESTIC

TRADE
Three Main Differences:

Trading Opportunities

Sovereignty of Nations

International Finance
6

TRADING OPPURTUNITIES
International trade has wider scope and
offers more opportunities.
It makes availability of a wide variety of
goods within our reach; hence international
trade enriches our lives and lifestyles.
It enables a country to export what is
surplus with it.

SOVEREIGNTY OF NATIONS

International

trade involves people and firms

of different countries, where money flows
across the border, which is in contrast to
domestic trade.
Sometimes,

countries impose trade barriers

like tariffs and quota in order to protect their
own industries.
8

INTERNATIONAL FINANCE
International

trade enables countries to

earn foreign exchange.

Foreign

exchange
international trade.

in

turn

facilitates

Above all, it makes people to people

interaction possible across the globe.
Thus,
international
trade
promotes
international peace and harmony.

10

REASONS FOR INTERNATIONAL

TRADE

Diversity in Natural Resources

Differences in Tastes

Differences in Costs

11

DIVERSITY IN NATURAL RESOURCES

One country with oil, other with fertile land

find trade as mutually beneficial.

Pakistan is an Agriculture enriched country

Where as Iran is Oil enriched country. Both
can get benefit by International trade.

Thus, diversity in natural

encourages international trade

resources
12

DIFFERENCES IN TASTES

Even if all countries were endowed with same

natural resources and identical production
facilities, theyd have preferred trade due to
different tastes.

Ex: Pakistan and India appear to be identical in

many respects; yet most of Pakistanis prefer
chicken over pulses.

Both India and Pakistan can benefit from mutual

trade of chicken and pulses.
13

DIFFERENCES IN COSTS

Cost factor is perhaps the most important reasons

for trade.

Consider Intel Company, which produces high

end Semiconductors has facilities in United
States as well as in China, Malaysia and
Philippines .

It often ships products manufactured in one

country to be assembled and tested in another
country
14

RECAPITULATION

15

16

COMPARATIVE ADVANTAGE
PRINCIPLE

The principle holds that a country can

benefit from international trade even if it is
absolutely more efficient or less efficient
than other countries in producing different
goods.

Trade, according to the Comparative

Advantage Principle, provides mutual
benefits to all trading countries.
17

COMPARATIVE ADVANTAGE
PRINCIPLE

It holds that each country will benefit if it

specializes in the production and export of
those goods that it can produce at relatively
low cost. Conversely, each country will
benefit if it imports those goods which it
produces at relatively high cost.

18

If Labor is absolutely more productive in

America than in Europe, Does this mean
that America will import nothing?
Is it Economically wise for Europe to
protect its markets with tariffs and quotas?
David Ricardo
International Specialization benefits a
nation.
19

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