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What Is the Relationship Between International Trade and Economic Growth?

Companies and economies can trade products and labor around the globe.
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  • Written By: Esther Ejim
  • Edited By: Kaci Lane Hindman
  • Last Modified Date: 17 March 2014
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International trade and economic growth are two concepts that go together, because international trade contributes to the growth of a country;s economy in several ways. Some of these ways include the effects of import and export, specialization, increased productivity and improved infrastructure. The exportation of goods to other countries can contribute to the growth of the exporting country by increasing the earnings of that country.

The national economies of some countries are even dependent on and sustained by their exports. For instance, some oil-producing countries depend on the income from the export of crude oil and its derivatives to sustain their nations. Some of these countries actually plan their national budgets based on projections or calculations of expected income from the export of oil. Apart from crude oil, other countries also partially base their national budget on the income from items like agricultural products, precious stones and even technology. This represents one way in which international trade and economic growth are linked.

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Apart from commodities, the international trade in labor is also an offshoot of globalization. Immigrants take much-needed skills to countries in which these skills are needed. Most immigrants from less-developed nations send money to relatives in their country of origin, contributing to the economic growth of those countries. They also help increase the growth of the economies of the countries where they live by contributing to productivity. For instance, migrant workers often work on farms where they supply labor to help prepare food items for sale locally and internationally. More skilled immigrants like engineers, doctors and nurses contribute to the growth of the economy of their chosen country.

Another factor establishing a link between international trade and economic growth is the increase in productivity. When there is a high demand for a product, the countries that produce such a product will automatically increase production in order to meet up with the demand for the product. This increase translates to more revenue and an improvement in the economy of the country.

A vibrant culture of international trade also contributes to the building of an infrastructural framework in order to sustain the trade. For instance, the demand for groundnuts from a country may lead to the building of roads and an improved transportation system to support the production. If the groundnuts are cultivated in farms located in villages that previously had a poor network of roads, the government or other corporate interests might build better roads.

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Discuss this Article

NathanG
Post 2

@hamje32 - I think you’ve hit a nerve, but I am not sure it’s always a bad thing if there is a little deficit. After all, the cheap goods from China make it possible for people to increase their standard of living here by buying products that they can afford.

At any rate, I think it’s important to have an accurate picture about the nature of our imports and exports. There are a lot of things that the U.S. still exports, like technology, medicine, industrial products, plastics and so forth.

The export industry is not dead in the United States, despite a few imbalances here and there.

hamje32
Post 1

I generally agree that international trade is linked to economic growth, but the degree of that growth depends on the balance of trade in my opinion.

For instance, if we import more than we export, then there is a trade deficit. That means we are making some other country richer by buying their products but we are being made less rich because fewer nations are buying our goods.

I don’t understand how that situation could be good, and this is where we face a continual uphill battle with countries like China that make goods so much cheaper than we can.

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