Role Of Foreign Trade

Written by Waseem Raza

The role of foreign trade in economic development is as follows,

1. Foreign Trade and Economic Development

Foreign trade plays a very important role in the economic development of any country. Pakistan also exports a lot of agricultural products to other countries and imports capital goods from other countries. Therefore, it is not wrong to say that the economic development of a country directly depends on foreign trade.

  • Foreign exchange earnings

Foreign trade earning plays a vital role in the economic development of a country. Foreign trade leads to foreign exchange earnings which can be used to remove poverty and other productive purposes.

2. Quality goods at lower rates

If a country cannot produce a specific commodity, then it can import that commodity at lower rates from the international market in the presence of foreign trade which improves the living standards of people.

3. Removal of shortage of goods

Foreign trade is helpful for the removal of a shortage of goods. If there is a shortage of any commodity, then that commodity can be imported from the international market which will eliminate the shortage of goods in the market.

4. Removal of the monopolies

Foreign trade discourages the formation of local monopolies. The local producers cannot exploit the consumers because of fear of cheap imports. In the absence of imports, some local firms may create a monopoly and charge very high prices and due to which the level of inflation increases.

5. Stable prices

Foreign trade helps in the price stability of a country. If the price level of any commodity is high, then that commodity can be imported which will keep prices stable.

6. Increase in national income

In the presence of international trade, the resources are properly utilized which increases exports of the country and leads to an increase in Per capita income and national income.

7. Specialization in production

Foreign trade leads to specialization in the production of those goods which a country can produce at a lower cost. This situation improves the overall welfare of the people of any country.

8. Productive factors

Through foreign trade the productivity of factors of production increases. Mobility of factors of production is increasing due to their demands in the market which helps underdeveloped countries to develop and maintain a high level of growth of developed countries.

 9. Import of capital goods and technology

The inflow of capital goods and technology in less developed countries has increased the rate of economic development, and this is only possible through due to foreign trade.

10. World peace

Today all the countries are tied in trade relations with each other through foreign trade. Foreign trade contributes to the peace and prosperity of the world.

11. External economics

External economics can also be achieved through foreign trade. The industries producing foods on large scale in Pakistan and other countries are enjoying the external economics due to international trade.

12. Import of consumer goods

Pakistan imports various consumer goods from other countries, which are not produced inside the country. Today the shortage of any commodity can be removed through international trade.

13. Agricultural development

Agricultural development is the backbone of our economy. Foreign trade has played a very important role in the development of our agriculture sector. Every year we export rice, cotton, fruits, and vegetables to other countries. The export of goods makes our farmers more prosperous.

14. Decrease in unemployment

With the rise in the demand for goods domestic resources are fully utilized and it increases the rate of development in the country and reduces unemployment in the world and creates employment opportunities. 

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