International trade is also known as foreign trade or external trade which involves the exchange of goods and services between two or more countries. The principle underlying the buying and selling between one country and another is specialization. The theory of international trade, therefore, is based on the principle of comparative cost as propounded by David Richardo. The theory states that a country should specialize in the production of goods and services for which it has cost advantage over another country. This, he pointed out will bring about the production of goods at cheaper cost. For example, Nigeria purchases goods like automobiles and electronics from oversea countries and sells commodities like cocoa, groundnut, crude oil, etc to them.
Types of International Trade
There are two major types, these are:
1. Bilateral trade: Bilateral international trade is a trade agreement in which two countries exchange goods and services. It occurs when each country tries to balance its payments and receipts separately and individually with each other.
2. Multilateral trade: Multilateral international trade is a type of international trade in which a country trades with many other countries. This ensures international division of labor. It is a type of trade in which many countries exchange their goods and services. Multilateral international trade is necessary if the total volume of world trade is to be raised to its maximum.
Internal Trade
It also known as domestic trade or home trade involves the exchange of goods and services among the people within a particular country. It involves the buying and selling of goods and services within a particular country. The items in such trade include those goods and services which are produces and sold internally or locally. Points to note are as follows:
1. Both trades involve a degree of specialization to cause exchange.
2. Both forms involve the activities of middlemen.
3. Both of them arise due to inequitable distribution of natural endowments and production resources.
4. Foreign trades occurs across national frontiers while internal trade involves the exchange of goods within the borders of a country.
5.In foreign trade buyers and sellers use different currencies, whereas buyers and sellers in home trade use the same type of currency.
6. There is possibility of restriction-tariffs, import duties, export duties, quotas, embargo-when goods are exchanged across national boundaries while this does not occur in home trade.
7. There are differences in systems of weighing and measuring in one country vis-a-vis an other. A country has only one system of such weighing and measuring.
8. Differences in transport cost due to distance between buyers and sellers, documentation requirement, need for insurance in respect of foreign trade distinguish foreign trade from home trade.
9. There are also differences in legal systems and culture under international trade but the legal system are the same in domestic trade.
10. Foreign trade requires knowledge of new languages and interpretations while in domestic trade, a common language is used.
Finally, the main significance of international trade is the establishment of unity and better interaction between countries and global regions and hence making the world more and more of a global village.
