Foreign trade is nothing but trade between the different countries of the world. It is also called as International trade, External trade or Inter-Regional trade. It consists of imports, exports and entrepot. The inflow of goods in a country is called import trade whereas outflow of goods from a country is called export trade. Many times goods are imported for the purpose of re-export after some processing operations. This is called entrepot trade. Foreign trade basically takes place for mutual satisfaction of wants and utilities of resources.
Foreign Trade can be divided into following three groups:-
Import Trade: Import trade refers to purchase of goods by one country from another country or inflow of goods and services from foreign country to home country.
Export Trade: Export trade refers to the sale of goods by one country to another country or outflow of goods from home country to foreign country.
Entrepot Trade: Entrepot trade is also known as Re-export. It refers to purchase of goods from one country and then selling them to another country after some processing operations.
Foreign trade has got an important place in the economic development of a country. What is the importance of foreign trade for economic development of country is stated below:
· Foreign trade and economic development.
Foreign trade plays very important role in the economic development of any country. Pakistan also exports a lot of agricultural product to other countries and imports the capital goods from other countries. Therefore, it is not wrong to say that economic development of a country depends of foreign trade.
· Foreign exchange earning
Foreign trade provides foreign exchange which can be used to remove the poverty and other productive purposes.
· Foreign investment
Besides the local investment, foreign trade provides incentives for the foreign investors to invest in those countries where there is a shortage of investment.
· Increase in national income
Foreign trade increases the scale of production and national income of the country. To meet the foreign demand we increase the production on large scale so GNP also increases.
· Decrease in unemployment
With the rise in the demand of goods domestic resources are fully utilized and it increases the rate of development in the country and reduces the unemployment in the world.
· Price stability
Foreign trade helps to bring stability in price level. All those goods which are short and prices are increasing can be imported and those goods which are surplus can be exported. There by stopping fluctuation in prices.
There is a difference in the quality and quantity of various factors of production in different countries. Each country adopts the specialization in the production of those commodities, in which it has comparative advantage. So all trading countries enjoy profit through international trade.
· Agricultural development
Agricultural development is the back bone in our economy. Foreign trade has played very important role for the development of our agriculture sector. Every year we export rice, cotton, fruits and vegetables to other countries. The export of goods makes our farmer more prosperous. It inspires the spirit of development in them.
· Import of consumer goods
India and Pakistan imports the 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.
· To improve quality of local products
Foreign trade helps to improve quality of local products and extends market through changes in demand and supply as foreign trade can create competition with the rest of the world.