Question
Explain the factors affecting trade between two countries.
✓
Answer
Trade refers to transfer of goods or services from one person to another or from one country to another. Factors which affect the trade are natural resources, climate, population, culture, economic cost, specialization, etc.
Natural resources : Distribution of natural resources is uneven. The natural resources available in one country differs from another. Because of this uneven distribution of resource, there is trade between resources surplus and resource deficit.
Climate : Climate mainly affects the plants and animals in a region. In the areas of different climate, there are different types of plants and animals. Example, in the tropical countries like Sri Lanka whose major export is tea or Malaysia and Indonesia, whose major export is rubber. This occurs naturally because of favourable climate for growing tea and rubber plants in these countries.
Population : Population size, distribution and density are different in different countries. This leads to difference in production and consumption and hence trade occurs.
Standard of living can also determine the demand for various goods and services. The country with less population depends more on trade because fewer human resources is engaged in production of goods.
Culture : Some countries are known for their specific art and craft, based on their culture, specific production of goods which have worldwide market, for e.g., Kashmiri shawls or Iranian carpets.
Economic Cost : Cost of production is the major factor in the process of production. It is cheaper to import certain goods than producing it in the country itself. For example, it is cheaper to import tea from India and Sri Lanka than producing it in England.
Specialisation : Due extremely favourable factors of production, some countries have specialisation for certain goods and they have name and fame in the world market, so they develop export trade. For example, watches of Switzerland or electronic goods of Japan or tender beef of Argentina.
Government Policy: Government policy about export or import affects trade. For example, Government may increase import duties of some goods, to encourage people to buy domestic goods. Thus, import trade of those goods goes down.
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