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.
·
Specialization
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.