Assignment

on
"The Importance of International Trade all over the World"

Submitted To
Sharmin jahan Runa
Department of Law
Sonargaon University

Submitted By
Latifa Akter
Student ID. LLMP2003021001
Program: LL.M (2 Years)
Department of LAW
Sonargaon University

Date of Submission: 08/01/2021

1
 Table of Contents
Particulars
1. Introduction
2.The importance of international trade
3.Importance of trade
4. The Importance of International Trade
5. Impact of International Trade on Economic Growth in Bangladesh
6. The advantages of trade
7. The Disadvantages of trade
8. Benefits of International Trade
9. Several benefits that can be identified with reference to
international trade are as follows:
10. Trade has grown remarkably over the last century
11. The role of international trade in the post-2015 development
agenda
12. Trade as an enabler of inclusive and sustainable development.
13. Conclusion
References

2
1. Introduction
Recent decades have seen fast growth of the world economy. This growth has been driven in
part by the even faster rise in international trade. The growth in trade is in turn the result of
both technological developments and determined efforts to reduce trade barriers. Some
developing countries have opened their own economies to take full improvement of the
opportunities for economic development through trade, but many have not. outstanding trade
barriers in industrial countries are determined in the agricultural products and manual
manufactures in which developing countries have a proportional advantage. Further trade
liberalization in these areas mainly, by both industrial and developing countries, would help
the poorest get away from extreme poverty while also benefiting the industrial countries
themselves.1With the dawn of globalization, international business is becoming increasingly
popular. Multinational organizations are among the most profitable in the world. A company
needs to be conscious of the language and culture of the country where it plans to go aboard
with its investment. Politics and laws of the nation can either make international business
easy or hard. With the success of international business, its future is luminous, on a global
scale International trade, as a major factor of openness, has made an increasingly significant
contribution to economic growth.2 Integration into the world economy has proven a powerful
means for countries to encourage economic growth, development, and poverty diminution.
Over the past 20 years, the growth of world trade has averaged 6 percent per year, twice as
fast as world output. But trade has been an engine of growth for much longer. Since 1947,
when the General Agreement on Tariffs and Trade (GATT) was created, the world trading
system has benefited from eight rounds of multilateral trade liberalization, as well as from
independent and regional liberalization. Indeed, the last of these eight rounds (the so-called
"Uruguay Round" completed in 1994) led to the establishment of the World Trade
Organization to help administer the growing body of multilateral trade agreements. The
resulting combination of the world economy has raised living standards around the world.
Most developing countries have shared in this affluence; in some, incomes have risen
dramatically. As a group, developing countries have become much more important in world
trade—they now account for one-third of world trade, up from about a quarter in the early
1970s. Many developing countries have substantially increased their exports of manufactures
and services relative to traditional product exports: manufactures have risen to 80 percent of
1
Aguilar, L.M. "International Ties."0T0TChicago Fed Letter. The Federal Reserve Bank of Chicago. October,
1993.Kreinin, M.E.0T0TInternational Economics: A Policy Approach, 6th Edition.0T0TNew York: Harcourt
Brace Jovanovich, Publishers, 1991.
2
Lindsey, R. "America's Growing Economic Lead."0T0TThe Wall Street Journal, February 7, 1992

3
developing country exports. Moreover, trade between developing countries has grown
quickly, with 40 percent of their exports now going to other developing countries. However,
the progress of combination has been uneven in recent decades. Progress has been very
remarkable for a number of developing countries in Asia and, to a lesser extent, in Latin
America. These countries have become successful because they chose to participate in global
trade, helping them to attract the bulk of foreign direct investment in developing countries.
This is true of China and India since they embraced trade liberalization and other market-
oriented reforms, and also of higher-income countries in Asia—like Korea and Singapore—
that were themselves poor up to the 1970s.But progress has been less quick for many other
countries, particularly in Africa and the Middle East. The poorest countries have seen their
share of world trade decline substantially, and without lowering their own barriers to trade,
they risk further marginalization. About 75 developing and transition economies, including
virtually all of the least developed countries, fit this description. In contrast to the successful
integrators, they depend suspiciously on production and exports of traditional produce. Trade
describes and predicts patterns of production, trade and investment across countries. It also
looks at the result that trade has on both the level and allotment of incomes within and across
countries. It analyses different trade policies, the possessions of ‘regionalism' (regional
trading blocs) and the potential effect of multilateral trade negotiations conducted by World
Trade Organization (WTO).3International Finance examines the effects of financial flows
between countries. It looks at the effect of such flows on the balance of payments and the
exchange rate. It also evaluates the implications of different exchange rate regimes and
considers the suitable role of international institutions such as the International Monetary
Fund (IMF).Students of International Economics can make use of the skills and tools learned
in a broad range of career paths, such as journalism, consultancy, government agencies and
international institutions, while at the same time enjoying the ability to make sense of some
of the most important and composite issues of our times.4 International economics is growing
in importance as a field of study because of the rapid integration of international economic
markets. Increasingly, businesses, consumers, and governments realize that their lives are
pretentious not only by what goes on in their own town, state, or country but also by what is
happening around the world. Consumers can walk into their local shops today and buy goods
and services from all over the world. Local businesses must compete with these foreign
products. However, many of these same businesses also have new opportunities to make
3
Reich, R. "The Myth of Made in America."0T0TThe Wall Street Journal,0T0TJuly 5, 1992.
4
Schluter, G. and W. Edmondson. "USDA's Trade Multipliers: A Primer.0T0TAgriculture Information Bulletin
No. 697,0T0TUnited States Department of Agriculture, April, 1994.

4
bigger their markets by selling to a huge number of consumers in other countries. The
advance of telecommunications is also rapidly dropping the cost of providing services
internationally, while the Internet will assuredly change the nature of many products and
services as it expands markets even additional.5
2.The importance of international trade
International trade between different countries is an important factor in raising living
standards, providing employment and enabling consumers to enjoy a greater variety of goods.
International trade has occurred since the earliest civilizations began trading, but in recent
years international trade has become increasingly important with a larger share of GDP
devoted to exports and imports.

World Bank stats show how world exports as a % of GDP have increased from 12% in 1960
to around 30% in 2015.
With an increased importance of trade, there have also been growing concerns about the
potential negative effects of trade – in particular, the unbalanced benefits with some losing
out, despite overall net gains.6

3.Importance of trade
1. Make use of abundant raw materials
5
Smith, A.0T0TAn Inquiry Into the Nature and Causes of the Wealth of Nations,0T0TNew York: Modern
Library, Inc. Originally published in 1776
6
https://www.economicshelp.org/blog/58802/trade/the-importance-of-international-trade/

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Some countries are naturally abundant in raw materials – oil (Qatar), metals, fish (Iceland),
Congo (diamonds) Butter (New Zealand). Without trade, these countries would not benefit
from the natural endowments of raw materials. A theoretical model for this was developed by
Eli Heckscher and Bertil Ohlin. Known as the Heckscher–Ohlin model (H–O model) it states
countries will specialise in producing and exports goods which use abundant local factor
endowments. Countries will import those goods, where resources are scarce.7
2. Comparative advantage
The theory of comparative advantage states that countries should specialise in those goods
where they have a relatively lower opportunity cost. Even if one country can produce two
goods at a lower absolute cost – doesn’t mean they should produce everything. India, with
lower labour costs, may have a comparative advantage in labour-intensive production (e.g.
call centres, clothing manufacture). Therefore, it would be efficient for India to export these
services and goods. While an economy like the UK may have a comparative advantage in
education and video game production. Trade allows countries to specialise. More details on
how comparative advantage can increase economic welfare. The theory of comparative
advantage has limitations, but it explains at least some aspects of international trade.8
3. Greater choice for consumers
New trade theory places less emphasis on comparative advantage and relative input costs.
New trade theory states that in the real world, a driving factor behind the trade is giving
consumers greater choice of differentiated products. We import BMW cars from Germany,
not because they are the cheapest but because of the quality and brand image. Regarding
music and film, trade enables the widest choice of music and film to appeal to different tastes.
When the Beatles went on tour to the US in the 1960s, it was exporting British music –
relative labour costs were unimportant. Perhaps the best example is with goods like clothing.
Some clothing (e.g. value clothes from Primark – price is very important and they are likely
to be imported from low-labour cost countries like Bangladesh. However, we also import
fashion labels Gucci (Italy) Chanel (France). Here consumers are benefitting from choice,
rather than the lowest price. Economists argue that international trade often fits the model of
monopolistic competition. In this model, the important aspect is brand differentiation. For
many goods, we want to buy goods with strong brands and reputations. e.g. popularity of
Coca-Cola, Nike, Addidas, McDonalds e.t.c.
4. Specialisation and economies of scale – greater efficiency
7
U.S. Department of Commerce.0T0TU.S. Foreign Trade Update,0T0TOffice of Trade and Economic Analysis.
November 18, 1994.
8
Allsopp C, Fattouh B. 2011. Oil and international energy. Oxford Review of Economic Policy. 27:33-67

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Another aspect of new trade theory is that it doesn’t really matter what countries specialise in,
the important thing is to pursue specialisation and this enables companies to benefit from
economies of scale which outweigh most other factors. Sometimes, countries may specialise
in particular industries for no over-riding reason – it may just be a historical accident. But,
that specialisation enables improved efficiency. For high value-added products,
multinationals often split the production process into a global production system. For
example, Apple designs their computers in the US but contract the production to Asian
factories. Trade enables a product to have multiple country sources. With car production, the
productive process is often even more global with engines, tyres, design and marketing all
potentially coming from different countries.9
5. Service sector trade
Trade tends to conjure images of physical goods import bananas, export cars. But,
increasingly the service sector economy means more trade is of invisibles – services, such as
insurance, IT services and banking. Even in making this website, I sometimes outsource IT
services to developers in other countries. It may be for jobs as small as $50. Furthermore, I
may export a revision guide for £7.49 to countries all around the world. A global economy
with modern communications enables many micro trades, which wouldn’t have been as
possible in a pre-internet age.
6. Global growth and economic development
International trade has been an important factor in promopting economic growth. This growth
has led to a reduction in absolute poverty levels – especially in south east Asia which has
seen high rates of growth since the 1980s.10

4. The Importance of International Trade

Grows Jobs and Businesses
Protectionists often warn that trading internationally will send U.S. jobs overseas and leave
American workers hanging out to dry. One thing that protectionists fail to see is that
international trade promotes job growth in foreign and domestic nations alike. According to
the U.S. Chamber of Commerce, more than 41 million American jobs are supported by
9
Anderson K, Martin W. 2011. Export Restrictions and Price Insulation during Commodity Price Booms.
World Bank Policy Research Working Paper No. 5645
10
Almoguera P, Douglas C, Herrera A. 2011. Testing for the cartel in OPEC; non-cooperative collusion or just
non-cooperative? Oxford Review of Economic Policy, 27:33-6

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international trade. Studies like the Heritage Foundation’s Index of Economic Freedom say
that more than half of the United States’ imports come in the form of raw materials or
intermediate products that U.S. workers build or assemble into finished goods. If companies
could not get these lower cost inputs, they would not be able to hire as many workers.
Contrary to protectionist views, there is a correlation between international trade and
employment rates. According to the Heritage Foundation, in 2008-09, the U.S. decreased its
trade deficit with other nations, and increased its unemployment rate from 5.8 percent to 9.3
percent. Inversely, from 2009-14 the U.S. trade deficit increased but the unemployment fell
from 9.3 percent to 6.2 percent. So, even though the U.S. imported more than it exported, the
imports produced American jobs. The exact same manufacturing or production jobs may not
be available than would be if America did not participate in international trade, but new,
innovative job opportunities open up.
International trade also promotes business growth. According to the U.S. Department of
Commerce, approximately 300,000 small and medium sized business export products and
services outside the U.S. These businesses make up more than a third of the U.S. exports and
the number of these businesses has grown three times in the past twenty years. Allowing free
and open international trade allows more companies like these to enter the market and gives
them the chance to sell their products globally as well.11
Grows and Strengthen Markets
Another benefit of international trade is that it fuels competition, innovation, and economies
of scale.
Competition – Each nation has strengths in terms of resources like labor, materials, or
knowledge, and they all can compete together in the world market for other nations’ business.
Once a nation reaches peak efficiency and effectiveness, they develop a comparative
advantage to other nations and will specialize in a product or service until they are the best.
That is when everyone wins.
Consumers are able to purchase from more options, and sellers compete for the business by
making the best products and services the most efficiently. Prohibiting international trade
keeps sellers from entering the market and does not incentivize the other nations to produce
the best that they can. The competition is vital for nations to grow, expand, and innovate their
processes to produce the best goods and services possible.

11
https://www.protrans.com/blog-the-importance-of-international-trade/

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Innovation is a key tenet of competition. Trade gives nations reasons to discover new ways
to produce goods and services better, more cheaply, and more quickly. Countries that only
rely on themselves close themselves off from new developments the rest of the world has to
offer.
As discussed earlier, international trade promotes job innovation. Protectionists are often
concerned that the same jobs are not available that once were, and that is true – new
industries often replace the old ones. A popular example is that in modern America, there is
an abundance of car manufacturers and a minority of Conestoga wagon makers – whereas in
the 1800s this would not have been the case. Companies like Samsung create new Blu-ray
players and not as many VHS players (or, more likely, none at all). As trade progresses, new
technology is developed. Innovation is ignited and better products are available – in greater
numbers. With international trade, those innovations reach more people who also must
innovate to get ahead. The consumer is able to win by getting the best products at the best
price available.
Economies of Scale – Nations that participate in international trade are able to develop and
strengthen economies of scale for their products and services. When a nation has the entire
globe to trade with, rather than just its people alone, the marketplace (and subsequent
demand) is larger. More consumers will want a product or service and nations can lower
prices. The more products and services nations can provide, the cheaper those products and
service can be. That is because the costs can be spread over more products and drive down
the price per unit.12
Global Growth and Economic Development
Lastly, international trade is important for nations to develop their own natural resources and
to participate in the global economy.
Countries can only use so much of any given product. Americans, for example, are not able
to consume all of the crops it grows each year. According to the American Farm Bureau
Federation, one in three acres of farms are planted for export. One third of U.S. agriculture is
grown to sell to other countries. The same is true for other nations. Each can produce a good
or service but cannot use it all themselves. That is why international trade is essential. It
allows countries to turn “unneeded” resources into money or other “needed” resources.
Participating in the global economy not only allows consumers to receive goods and services
at the best prices; it also is an essential part of a nation relating to other nations on a

12
ibid

9
sovereign basis. Countries requires interaction with one another to be recognized by the
international community, and the most peaceful way is trade. International trade shows a
commitment to being a part of the international community and a resolution to working with
other nations in a peaceful and reasonable way.
International trade is the basis of many economies such as the United States. It is in the
American spirit. Free trade and enterprise fuel competition, innovation, and economies of
scale so that consumers worldwide can get the best products for the best prices. Protectionist
views try to build up industry by removing consumer choices, but they fail to see how that
philosophy stagnates prosperity. When nations isolate themselves, they confine themselves to
only what they have on hand – the labor, resources, and finished goods. Working together,
especially in international trade, allows each countries’ efforts to synergize and make them all
stronger than they would be alone.13
5. Impact of International Trade on Economic Growth in Bangladesh
International trade is so much essential for the development of any country because at the
time of globalization one country’s people can easily buy or sell products to another
country’s people. The objectives of this study were to determine the impact of international
trade on economic growth in Bangladesh and the relationship between international trade and
economic growth in Bangladesh. This study analyzed the achievements of the economy in
terms of important variables as export and import which together forms international trade
and economic growth was determined by GDP. 14
Export
The term export refers to the sending of goods or services produced in one country to another
country to satisfy their needs. It indicates the goods and services produced in one country and
purchased by citizens of another country for satisfying their desires. The sender of goods or
services is known as exporter and receiver of goods or services is known as importer. Export
occurs when a product or services is produced domestically and sold to a foreign country.
The total export of goods and services by Bangladesh from 2008-2017 is presented here.15
Import
The term import refers to the purchasing of goods or services another country to satisfy
requirement of the people. It indicates the goods and services produced in foreign country
13
ibid
14
Afolabi, B., Danladi, J. D., & Azeez, M. I. (2017). International Trade and Economic Growth in Nigeria.
Global Journal of Human-Social Science Research.
15
Ahamad, M. H., &Das, B. C. (2018). Facebook Addiction among College going Students: An Exploratory
Study in Patuakhali District of Bangladesh. Social Science and Humanities Journal, 617-623.

10
and purchased by citizens of home country for satisfying their desires. Imports of goods or
services consist of all goods or services rendered by non-residents to residents. The receiver
of goods or services is known as importer and the sender of goods or services is known as
exporter. Import occurs when a product or services is produced in foreign country and
purchased by home country. The total import of goods and services by Bangladesh from
2008-2017 is presented here.16
GDP
Gross Domestic Product (GDP) refers to the monetary measure of the market value of all
goods and services produced in a country within a definite period of time. Nowadays, GDP is
considered as the world's most powerful statistical indicator of national economic growth of a
country. The GDP and GDP growth rates of Bangladesh from 2008-2017 are presented
here.17
The advantages of trade
International trade brings a number of valuable benefits to a country, including:
1. The exploitation of a country’s comparative advantage, which means that trade
encourages a country to specialise in producing only those goods and services which
it can produce more effectively and efficiently, and at the lowest opportunity cost.
2. Producing a narrow range of goods and services for the domestic and export market
means that a country can produce in at higher volumes, which provides further cost
benefits in terms of economies of scale.
3. Trade increases competition and lowers world prices, which provides benefits to
consumers by raising the purchasing power of their own income, and leads a rise in
consumer surplus.
4. Trade also breaks down domestic monopolies, which face competition from more
efficient foreign firms.
5. The quality of goods and services is likely to increases as competition encourages
innovation, design and the application of new technologies. Trade will also encourage
the transfer of technology between countries.
6. Trade is also likely to increase employment, given that employment is closely related
to production. Trade means that more will be employed in the export sector and,
through the multiplier process, more jobs will be created across the whole economy.
16
Daumal, M. (2010). The impact of international trade flows on economic growth in Brazilian states. Review
of Economics and Institutions, 2(1).
17
Frankel, J. A., & Rose, A. K. (1998). The endogenity of the optimum currency area criteria. The Economic
Journal, 108(449), 1009-1025.

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6. The advantages of trade
International trade brings a number of valuable benefits to a country, including:
1. The exploitation of a country’s comparative advantage, which means that trade
encourages a country to specialise in producing only those goods and services which
it can produce more effectively and efficiently, and at the lowest opportunity cost.
2. Producing a narrow range of goods and services for the domestic and export market
means that a country can produce in at higher volumes, which provides further cost
benefits in terms of economies of scale.
3. Trade increases competition and lowers world prices, which provides benefits to
consumers by raising the purchasing power of their own income, and leads a rise in
consumer surplus.
4. Trade also breaks down domestic monopolies, which face competition from more
efficient foreign firms.
5. The quality of goods and services is likely to increases as competition encourages
innovation, design and the application of new technologies. Trade will also encourage
the transfer of technology between countries.
6. Trade is also likely to increase employment, given that employment is closely related
to production. Trade means that more will be employed in the export sector and,
through the multiplier process, more jobs will be created across the whole economy.18
7. The Disadvantages of trade
Despite the benefits, trade can also bring some disadvantages, including:
1. Trade can lead to over-specialisation, with workers at risk of losing their jobs should
world demand fall or when goods for domestic consumption can be produced more
cheaply abroad. Jobs lost through such changes cause severe structural
unemployment. The recent credit crunch has exposed the inherent dangers in over-
specialisation for the UK, with its reliance on its financial services sector.
2. Certain industries do not get a chance to grow because they face competition from
more established foreign firms, such as new infant industries which may find it
difficult to establish themselves.
3. Local producers, who may supply a unique product tailored to meet the needs of the
domestic market, may suffer because cheaper imports may destroy their market. Over

18
https://www.economicsonline.co.uk/Global_economics/Why_do_countries_trade.html

12
 time, the diversity of output in an economy may diminish as local producers leave the
market.19
Free Trade Agreements
Indeed, tremendous benefits have flowed from U.S. free-trade agreements (FTAs), which
cover 20 countries.
 These countries represent approximately 6% of the world’s population outside the United
States, and yet these markets purchased nearly half of all U.S. exports, according to the U.S.
Department of Commerce. In other words, U.S. FTAs do an outstanding job making big
markets even out of small economies.
 The trade balance is a poor measure of the success of these agreements, but deficits are often
cited by trade skeptics as a reason why the United States should not negotiate free trade
agreements. However, with regard to manufactured goods, the United States ran a cumulative
trade surplus with its trade agreement partner countries of $249 billion over the past nine
years (2009-2018), according to data from the U.S. Department of Commerce.
 Overall, looking at trade in all goods and services, the United States had a tiny trade deficit
with its 20 trade agreement partners as a group over the 2009-2017 period (latest available for
services trade data). The cumulative total was about $25 billion—less than two thousandths of
one percent of total trade with these countries during this nine-year period.
8. Benefits of International Trade
The benefits that can be identified with Reference to International Trade are as follows:
International trade allows countries to exchange good and services with the use of money as a
medium of exchange. The benefits of international trade have been the major drivers of
growth for the last half of the 20th century.
Nations with strong international trade have become prosperous and have the power to
control the world economy. The global trade can become one of the major contributors to the
reduction of poverty.

9. Several benefits that can be identified with reference to international

trade are as follows:

19
ibid

13
1) Greater Variety of Goods Available for Consumption:
International trade brings in different varieties of a particular product from different
destinations. This gives consumers a wider array of choices which will not only improve their
quality of life but as a whole it will help the country grow.
2) Efficient Allocation and Better Utilization of Resources:
Efficient allocation and better utilization of resources since countries tend to produce goods
in which they have a comparative advantage. When countries produce through comparative
advantage, wasteful duplication of resources is prevented. It helps save the environment from
harmful gases being leaked into the atmosphere and also provides countries with a better
marketing power.
3) Promotes Efficiency in Production:
International trade promotes efficiency in production as countries will try to adopt better
methods of production to keep costs down in order to remain competitive. Countries that can
produce a product at me lowest possible cost will be able to gain larger share in the market.
Therefore an incentive to produce efficiently arises. This will help to increase the standards
of the product and consumers will have a good quality product to consume.
4) More Employment:
More employment could be generated as the market for the countries’ goods widens through
trade. International trade helps generate more employment through the establishment of
newer industries to cater to the demands of various countries. This will help countries to
bring-down their unemployment rates.
5) Consumption at Cheaper Cost:
International trade enables a country to consume things which either cannot be produced
within its borders or production may cost very high. Therefore it becomes cost cheaper to
import from other countries through foreign trade.
6) Reduces Trade Fluctuations:
By making the size of the market large with large supplies and extensive demand
international trade reduces trade fluctuations. The prices of goods tend to remain more stable.
7) Utilization of Surplus Produce:
International trade enables different countries to sell their surplus products to other countries
and earn foreign exchange.

14
8) Fosters Peace and Goodwill:
International trade fosters peace, goodwill, and mutual understanding among nations.
Economic interdependence of countries often leads to close cultural relationship and thus
avoid war between them.
10. Trade has grown remarkably over the last century
The integration of national economies into a global economic system has been one of the
most important developments of the last century. This process of integration, often called
Globalization, has materialized in a remarkable growth in trade between countries. The chart
here shows the value of world exports over the period 1800-2014. These estimates are in
constant prices (i.e. have been adjusted to account for inflation) and are indexed at 1913
values. This chart shows an extraordinary growth in international trade over the last couple of
centuries: Exports today are more than 40 times larger than in 1913.20
11. The role of international trade in the post-2015 development agenda
Economic growth for transformation was narrowly treated in the Millennium Development
Goals. Trade was confined to Goal 8 (develop a global partnership for development) and
mainly referred to as a matter of market access and tariff reduction. The rationale for
developing “further an open, rule-based, predictable, non-discriminatory trading and financial
system” was not explicit. Therefore, in the context of the post-2015 development agenda,
international trade should be seen an “enabler” for achieving a broad range of development
goals through promoting inclusive and sustainable economic growth. When properly
harnessed, the opportunities brought by international trade can be a powerful force for
creating jobs, enabling efficient use of resources, providing incentives to entrepreneurs and
ultimately improving standards of living in all countries. Trade helps generate economic
conditions that are favourable for achieving development goals. But it is the conditions under
which trade takes place and the coherence of trade policy with other policies that will
catalyse the positive effects of trade. Therefore, beyond targets, goals and indicators, it will
be important to focus on identifying the types of national policies and international contexts
that would harness the enabling power of trade for development, and against that background,
design a coherent framework in which targets and indicators are sustained with respect to the
policy mix and conditions required to bring about the desired goals.21

12. Trade as an enabler of inclusive and sustainable development.

20
https://ourworldindata.org/trade-and-globalization
21
World Bank, 2013, World Development Indicators.

15
International trade is a powerful enabler of economic development. Empirical literature
supports this with strong evidence that increased participation in international trade can spur
economic growth, which itself is a necessary condition for broader development outcomes to
be realized. By connecting global markets to developing-country producers and consumers,
trade – both through exports and imports – provides a critical channel for the flow of finance,
technology and services needed to further improve productive capacity in agriculture,
industry and services. These are needed in turn for structural transformation of economies. A
case in point is the recent development path demonstrated by developing countries in East
Asia and South-East Asia. A fundamental factor behind their rapid economic growth has been
their ability to strengthen competitive productive and export capacities, first in traditional
agricultural and textiles/clothing sectors and then in labour-intensive manufactures which
shifted at times swiftly into high-technology manufactures such as electronics. Their export-
led growth was a result of strategic trade opening, but also of policies that were
complementary to the enabling power of trade with its impacts on economic and social
development. 4. Economic growth is a necessary condition for poverty reduction, particularly
in low-income countries. When a country’s gross domestic product (GDP) per capita is
sufficiently large, poverty reduction may be largely a question of redistribution of income. In
developing countries with low income levels, redistributive transfers alone are not sufficient
for, or may even become adversarial to, poverty reduction.22 Poverty reduction in such cases
requires economic growth in terms of enlarging the share of gains received by each member
of the population, i.e. in terms of a higher output per worker, which is usually approximated
by GDP per capita The impact of trade on national income can be called the “income
channel”. Trade can raise the economy’s income-generating opportunities via, inter alia, a
“vent for surplus”.3 Through the income channel, participation in international trade affects a
wide range of development outcomes by influencing relative prices in the domestic economy.
Income changes may affect the incentives facing particular groups when deciding whether or
not to enter the formal labour force, which could generate significant impact on social
inclusion, for example, as regards gender equality. 6. In addition to income channels, there
are non-income channels linking trade and development outcomes. Trade can reduce the cost
of goods and services that are not domestically available at reasonable prices, and increase
quality and variety of such goods and services in the marketplace. A better and greater variety
of imported input factors (e.g. fuel and raw materials, intermediate goods and machinery

22
Measured in terms of the population below the international poverty line, i.e. $1.25 a day in purchasing power
parity.

16
equipment) lowers production costs and may enable production which otherwise would not
be feasible in the country. Improved access to essential goods and services such as medicines
and vaccines, medical equipment, food, energy and environment-related goods generates
direct developmental gains for consumers, as well as improves the cost-effectiveness of a
given public expenditure on, for example, health care.4 Also, as international trade transmits
the environmental preferences of firms and consumers in world markets, trade can thus
enhance the diffusion of environmental goods, services, technologies and sustainable and
socially equitable methods of production across countries.23
13. Conclusion
Transportation is one of the aspects where economic progress has made itself most
conspicuous. A well-organized global transport system plays a significant role in the global
trade and economic development .International manufacture is becoming increasingly
common over time as companies seek out low wages and land costs to achieve low
production costs that is the reason for global trade development. However, these results in the
need for long-distance international transport .Reduction of transportation costs may have
confident the increase in vertical specialization. Breaking the production process into stages
that are done in different locations incurs higher transportation costs than production that is
done within a single location. A part may be transported many times, incurring multiple
shipping fees. Transit. When transportation costs are high, it may be impractical to ship parts
many times using relatively expensive modes of transportation that can be a threat for future
global trade development.

23
The Global Partnership for Development: The Challenge We Face –Millennium Development Goals Gap
Task Force Report 2013 (New York, United Nations publication, Sales No. E.13.I.5).

17
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