Course Number : ACSS- 253

Course Title :Economics- Three: Money, Banking,

International Trade and Public Finance
Name of The Assignment : A crucial discussion on Concept &
Theories of Trade and Domestic Vs. International Trade

Submitted to:
Dr. Aparna Rani Dey
Lecturer
Institute of Education of Research
University of Dhaka

Group 1
Submitted by:
Name Roll
Sadik Ismail Tahsin 21-250
Jakia Sultana Tarin 21-277
Md. Mahebul Islam 21-271
Tahmina Sultana 21-274
Sayeed Hasan Murad 21-281

Date of Submission: 20 October 2022

Introduction:
Trade, the whole world is connected with this word. In this capitalist
world, the fate of different individuals, societies or states is constantly
determined through trade. Trade has specific definitions. Again it has a
specific theory. We can divide the trade into several parts. And among
them domestic trade and international trade are noteworthy. Domestic
trade refers to business activities carried on within a particular country.
On the other hand, international trade refers to the spread of trade
across domestic borders to the global level. Domestic trade has certain
characteristics. International trade also has certain characteristics. There
are some differences between them. Trade, trade theory, domestic trade
and international trade are discussed below

Concept of Trade:

Long ago, people used a system called the barter system where if a
person wants to buy something but has another thing to give instead.
But it was a complex method to find someone who needs to exchange in
opposition to desire. Thus,this collective need is what leads a person to
swap their items in hand to fulfil both their requirements. This is
considered an act of trade.

Simply, trade is an easy concept of an exchange system which occurs

between two parties according to each other's requirements. The whole
system is based on people's need including the benefit of each other. In
financial terms, trade refers to the sale and purchase of assets and
securities between two consensual sites.
The idea is not limited among local markets rather expanding beyond
local markets.Now international trade between two countries is the key
to the global economy and is the epicentre of economic growth and
development.

Theories of trade:

Trade theory shows The economic welfare of goods and services which
is dependent on production. Thus the comparative advantage of a
country is increased. Trade theory advocates that international
competitiveness is determined by factors endowment, increase savings
and investments,Innovations in products and production process and
intensify of entrepreneurial activity.

For analytical convenience, trade theory can be classified into two

categories namely,traditional theory (which has a new classical
foundation) and new trade theories. Traditional trade theory incorporates
the principles of perfect competition, homogeneous goods and constant
return to scale in production.This would include the trade theories of
Smith, Ricardo, Heckstar and Ohlin and the modifications or extensions
of the Heckscher-Ohlin theory.

Adam Smith theory of absolute advantage:For Smith,trade a more

intense application of the Division of labor in the production Which
Provides the main underlying condition for economic growth. Hence,
economic scale in production is the main facilitator of trade. According to

the theory of absolute advantage, a country specializes in the production

of those goods in which it has an absolute advantage and trades . In an
ideal smithian world there is an efficient allocation of resources with
“laissez-faire” policies and production is spatialized in the single product
in which the country has an absolute advantage.

Ricardian model of comparative advantage :In every Ricardian World,

Trade is determined by relative and not absolute efficiency in production.
Unlike the theory of absolute advantage, it can be shown that it will be in
the interest of every country to engage in trade since every country will
find a product in which it has a comparative advantage. Once again
specialization in production would occur and because trading countries
face the same relative prices. Specialization would occur in different
goods, thus facilitating exchange between the two trading
countries.”Laissez-faire” policies would ensure production in goods in
which the country has a comparative advantage. It is different in
technology that determine the goods in which the country has a
comparative advantage.

Hechscher Ohlin(H-O) model:The assumption that technologies are

identical across countries is basic to the H-O model and is a measure
point of departure from the ricardian model.In the theories of absolute
and comparative advantage, there is an implicit assumption of one factor
of production, thus, leaving the questions of the effects of trade on a
country’s factoral distribution of income unanswered. According to the
Hechscher model, the country export those goods which intensively uses
its abundant factor and imports those goods which are intensive in its
scare factor.The result emanates from the assumption that factors
applies determining factor prices. However, in the real world the
relationship between factor supply and price may not be so simplistic.
Types of Trade

Domestic Trade
Domestic trade refers to the exchange of goods or services within an
individual country or territory. In this type of trade scenario,the exchange
of domestic goods takes place within the boundaries of a country (e.g.,
the trade between Dhaka and Magura or Rangpur and Gazipur,
etc.). It also refers to merchandise exchange, both goods and services,
between buyers and sellers. That occurs between individuals who have
a residence in the same locality, region or nation.
Therefore, internal trade is the exchange of goods and services between
economic agents produced by agents who have their residence in the
same territory.
Moreover, this type of trade is called internal trade because the same
commercial regulations regulate these agents. In this sense, interior
business occurs within the same territory, carried out by agents who
reside in the same region. Although this can be produced in a local,
regional or national geographic area, it usually refers to that produced in
a national geographic area to break it down from foreign trade.
The following are some of the important features of domestic trade:
1) Trade within a nation :
The buying and selling of goods takes place within the boundaries of a
nation, subject to rules and regulation of the country.
2) Free exchange of goods :
There are no restrictions on the exchange of goods and services
between the buyer and seller. In case of foreign trade, there are a
number of restrictions, i.e., certain goods are banned from trading,
others are canalised and so on.
3) Single currency :
Goods and services are exchanged for a single currency. For instance,
In Bangladesh, Bangladeshi Taka is used as a medium of exchange.
4) Simplified trade procedure :
In domestic trade, there is a simplified trade procedure. Buyer places an
order and the seller executes it and receives his payment.
5) Simple taxes :
Domestic trade is subject to simple taxes. Such taxes include sales tax,
octroi duty, and such other taxes. Foreign trade is subject to heavy
customs duties.
6) Methods of payments :
In Domestic trade, the two main methods of payments are - payments by
cash and payment by cheques.
7) Low transport costs :
Domestic trade is subject to low transport costs because the distance
covered from the seller's place to buyer’s place is less as compared to
foreign trade.
8) Free mobility of factors of production :
In home trade, there is free mobility of movable factors of production,
i.e., labour and capital. There are no restrictions on their mobility.
9) Other features :
- There is less government interference.
- Risks and uncertainties are less as compared to foreign trade.
- There are no trading blocs in home trade.
-It is subject to less documentation formalities.
- The scale of operation is confined to a limited area, etc.

Types of Domestic Trade

There are two types of Domestic trade -
1. Wholesale trade and
2. Retail trade

Wholesale Trade

Picture : Wholesale trade

Wholesale trade is a business activity that involves buying products in
bulk from producers and selling them in smaller quantities to retailers.
The wholesale trader stores commodities, which frees up the
manufacturer's inventory and encourages higher production. In addition,
retailers benefit from the wholesaler's activities, as it lets them buy items
conveniently. Wholesalers benefit from economies of scale since they
buy in bulk at discounted prices. Most wholesalers resell commodities to
small business owners, although a few sell to other wholesalers.
According to William J. Stanton “Wholesaling includes the sale, and all
activities directly incidental to the sale of products or services to those
who are buying for resale or for business use.”
A wholesaler is directly in contact with the manufacturers but in indirect
contact with the consumers. A wholesaler is not only into selling
products as it is also involved in packaging, advertising, grading, and
market research. They normally make cash payments from retailers and
sometimes consumers themselves and give advance payments which
benefits the manufacturers. They sell in smaller quantities to retailers,
which refrains the retailers from requiring storage space. They do allow
credit facilities to retailers at times.
Characteristics of Wholesale Business:
● Collection of Product
● Buying- Selling Amount of Product
● Number of Product
● Selling Product to Consumer
● Position of Wholesale Business
● Per Unit Profit
● Large Capital
 ● Highest Risk
Some wholesale trade companies in Bangladesh:
● SQUARE APPARELS LIMITED.
● SHAH CEMENT INDUSTRIES LIMITED
● HEALTHCARE PHARMACEUTICALS LTD.
● APEX FOOTWEAR LIMITED
● ESKAYEF PHARMACEUTICALS LIMITED
● MARICO BANGLADESH LIMITED.
● ACI MOTORS LTD

Retail Trade

Picture: Retail trade

Retail trade is the business activity associated with the sale of goods to
the final consumer, the ultimate customer. It is the link between
wholesalers or manufacturers and the customers of the product.
Typically retailers sell goods in small quantities to consumers for
personal use, not for resale or business use.
According to W. J. Stanton “Retailing includes all activities directly
related to the sale of goods or services to the ultimate consumer for
personal, nonbusiness use.”
Retail is the final step of the distribution channel. the retailer will buy the
goods from the wholesaler, or sometimes directly from the producer, in
bulk (large quantities) at a discounted price. And then it sells the goods
to the final consumers of the goods, in small units or quantities, at retail
price enjoying the benefits in the process.
Characteristics of retail trade:
● The retailer is the last link in the distribution chain.
● The goods or services are sold directly to consumers by the retailer.
● A retailer deals with a wide range of goods.
● A retailer buys and sells a small number of products.
● The retailer maintains personal relations with the customers.
● The retailer is generally located in residential areas.
● The retailer may contact the customers on telephone, Internet, TV or
through his retail showroom.
● Retailers act as a middleman between wholesalers and customers.

International Trade
According to Prof. O.M.Amos, “International Trade is the exchange of
goods across the national border.”
According to M.C.Vaish,”International Trade may be defined as the
exchange of goods and services among the citizens of independent or
sovereign states or countries”.
In this era of current specialisation, no country in the world or even all
the regions of the same country are not self-dependent in the production
of the same type of products or services.For this, one country of the
world dependent on another country or one region on another region to
enjoy the necessary goods or products.International Trade originates
from such interdependence of different countries or regions.In a broad
sense, the exchange, sale or exchange of products and services
between two or more countries is called International Trade or Business.
International trade allows countries to enlarge their markets and access
goods and services that otherwise may not have been available
domestically.

Characteristics of international trade :

When we look at the characteristics of international trade we can notice
various things that affect international trade.
1.Global currency
All trade within a country is done in the same currency, but in
international trade, different currencies
are used between two or more countries.
For example: If Bangladesh imports any product, the importing company
has to pay dollars instead of
taka.
2. Impact of global situation:
One of the characteristics of international trade is that it is influenced by
global trends. The nature of international trade mainly depends on the
global situation.
For example, if Russia/Middle East stops exporting oil, it will affect the
commercial situation of the whole world.
Again, the conflict between different countries hinders international
trade.
3. Trade Agreements:
Another feature of international trade is that it is carried out through trade
agreements between
different countries. And commercial agreements act as principles and
documents in international
trade.
For example: Recently, a 5-year trade agreement has been executed
between Bangladesh and Brunei.
4. Government control:
Another important factor in international trade is government regulation
of international trade.
International trade is not free. A certain country cannot have free trade
with another country. Because
free trade can also be a threat to certain countries. Many times
international products can also be the
cause of destruction of domestic industry. So in this case government
control plays an important role.
For example: International trade rules of Bangladesh
5. Limitations
Another feature of international trade is limitation. Foreign trade is largely
cornered to keep domestic
industry and commerce free from foreign influence. And high tariffs,
international syndicates and
various restrictions affect international trade.
6. International competition:
Another feature of international trade is international competition. To sell
their products in the
international market, companies increase the quality of their products
and enter all competitive
stages.
For example: Apple and Microsoft. They are advancing their business by
competing all over the world.
7. Distance between buyer and seller :
In international trade, buyers and sellers are from different countries. As
a result, the buyer cannot
know who the seller is, and the seller cannot know who the buyer is.
Therefore middlemen play the
most important role in international trade.
For example, any company in Bangladesh wants to sell any product to
any company in India. In this
case, an institution will act as a middleman between the institutions of
Bangladesh and the
institutions of India

Classification :
(a)Import Trade
(b)Export Trade
(c) Entrepot Trade

IMPORT TRADE
The import trade refers to goods and services buyed into one nation
from another.” Import”
This word originates from the word “Port” considering the fact that the
products are often transported via ship to foreign countries. Here, the
expenditure of a country’s imports is more than the value of its
exports,then the country has a negative balance on trade ( BOT) that is
also known as trade deficit.
Many countries import products and services that the home country
cannot produce effectively or cheaply like another country.Commodities
and raw materials are imported sometimes by few countries that are not
available in their country.
For example,many countries import oil as they cannot manufacture
locally or cannot provide it in enough amounts to meet the nation’s
demand.
There must be followed the procedure mentioned below for import trade:
Trade Enquiry > Getting an Import Licence > Obtain Foreign Exchange >
Placing Order > Arranging Letter Of Credit > Arranging Letter Finance >
Acquiring shipping documents > Goods Arrival and Release Goods
EXPORT TRADE
Exports are explained as the products and services generated in one
country and acquired by citizens of another country. Anything as goods
and products can be exported. Through shipping, e-mail, transmitted in
private luggage on a plane this trade can be done. Basically, if the goods
are generated domestically ,it is called an export.
Exports are one of the components in International Trade. The other
component is imported which means the products and services buyed by
a country’s citizens that are manufactured in a foreign country.In the
country’s trade balance ,both the export and import contribute
combinedly.It becomes a” trade surplus” when the country’s export is
more than the import.When a country produce more than it demands,
then the surplus products may be sold to another country.
There must be followed the procedure mentioned below for export trade:
Trade Enquiry and Sending Quotations > receipt of Order or Indent >
Assessing the Creditworthiness > Obtaining Export Licence and Apply
Pre Shipment Finance > Procurement or Production of Goods > Obtain
Inspection Certificate and Excise Clearance > Obtaining Certificate of
Origin > Packaging, Forwarding and Insurance > Custom Clearance >
Obtaining Mate’s Receipt > Payment of Freight and Issuance of Bill of
Lading > Preparation of Invoice > Securing Payment
ENTREPOT TRADE
Entrepot trade means importing goods from a foreign country with the
intention of exporting them to another country at a high price. It is
actually a transshipment . It refers to a trade in one centre for the
products of other countries. Goods are imported for the motive of re-
exporting them to some other country.
So that the country or the place of first import acts as an intermediary,in
this trade.Without paying import duties in entrepot trade Marchandise
can be imported and exported. It is a mixing of import and export trade
and is also known as Re-export.Importing goods from one country and
exporting it to another country after
adding some value to it that is meant. London, Hong Kong, Amsterdam,
Singapore are the important centres for entrepot trade.

For example,
If a Bangladeshi company imports rubber from Thailand and exports it to
Malayeshia then it is called entrepot trade for Bangladesh.
Some features of this trade are :
- No import duty is imposed on such products in this trade
- For re-export these goods are processed and re-packed
- Until they are re-exported such goods are kept in the Bonded
Warehouses

Comparison between Domestic trade and

International trade:

Some of the important factors between domestic and international trade

are given below-
•Differences between domestic trade and international trade.
•Comparison.
•Domestic trade.
•International trade.

1)Definition:
•When economic activity takes place into a country is called domestic
trade.
•International trade is referred to as a trade that involves economic
activity between two individuals or businesses located in two different
countries or it can be trade among different countries.
2)Boundary:
•Within the following country
• Worldwide
3)Quality standards:
 •Low
•High
4)Investment:
•Less
•More
5)Medium of transaction:
•Following country’s currency
•Several country's currency
6)Rules & regulations:
•Few
•A lot
7)Demand of consumers:
•Almost same
•More diversified
8)Business intelligence:
•Easy
•Hard to conduct
9)The mobility of the components in production:
•Easy to change
•Complex and limited
10)Trade restrictions:
•No restrictions
•Different restrictions
11)Foreign reserve:
•Doesn't generate foreign reserve
•Generate foreign reserve
The main and important differences between domestic
and international trade:-
1)The differences between domestic and international trade are mainly
based on geographical areas. When trades are limited in one country is
called domestic trade but when it has no geographical boundaries is
calle international trade.
2)In terms of domestic trade, both the producer and consumer belong to
the same country.On the contrary,the producer and the consumer belong
to different countries in international trade.
3)Domestic trade is limited but international trade is more
wide-open.That means at the same time it represents more than one
country.
4)The service and the quality of final products in domestic trade are quite
poor.On the other hand,the service and quality of international trade are
more satisfying.
5)Transactions of domestic trades are carried out by the following
country’s currency system. Whereas international trade can be carried
out by several currency systems.
6)More investments need to run international trade than domestic trade.

7)The business policy of domestic trade follows one country’s law and
acts.But in case of running international trade is more complex.Several
country's several rules,law,tax,quota etc. Sometimes these work as
barriers.
8)In domestic trade, the demands and desires of consumers are almost
the same. But in terms of international trade demands and desires of
consumers varies from country to country.
9)Running domestic trade is more easy than international trade.Because
in case of international trade,it is too expensive.It needs huge
capital,manpower and research.Moreover, it needs different kinds of
research for different countries.
10)The components and methods of production in domestic trade are
dynamic and constantly changing.But the mobility of international trade
is limited.
11)Domestic trade doesn’t generate any foreign reserve because it is
limited into the country's boundary.But international trade generate a
huge amount of foreign reserve because it imports or conducts its
activities with foreign countries.
References:
➢ The Economics Time
➢ Trade Financial Global by Malika Qurban
➢ University of Pretoria etd-Rangasamy,J(2003)
➢ https://sg.indeed.com/
➢ https://en.wikipedia.org/wiki/Domestic_trade#Wholesale_trade
➢ https://www.dnb.com/business-directory/company-information.
➢ wholesale_trade.bd.dhaka.dhaka.html?page=2
➢ https://www.toppr.com/guides/business-studies/internal-trade/r
etail-trade/