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Domestic Trade vs International Trade & Advantages Vs Disadvantages


Labor and capital; the two most important factors of production, cannot move freely from one country. Difference of culture, language, religion, customs and rites, rules and regulation of immigration etc. cause a great hurdle in mobility of labor.

XI Economics Domestic Trade vs International Trade & Advantages Vs Disadvantages

Each country has a different currency Pakistan and India, for instance, have the rupee; the USA has the dollar and the UK the pound. Germany has the mark and Italy the lira.

Another notable difference between the two kinds of trade is that within a country free flow of goods takes place. But trade between different countries has to face a number of restrictions like imposition of face a number of restrictions like imposition of custom duties, exchange restrictions.

Different countries are endowed with different kinds of natural resources. Hence, a country tends to specialize in the production of those goods in which it is richly endowed and trade them with other where such resources are scare.

Every country is not able to produce all kinds of goods due to difference of geographical and climatic conditions.

International markets are different to each other with the difference in their language, customs, habits and taste etc. Besides, the systems of weights and measures are different from country to country.
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Following types of advantages may be gained from international trade.

  • International trade can help a country to get those goods which it does not produce itself or can produce with higher cost. For example, we see Saudi Arabia gets most of her foodstuffs from other countries.

  • With the help of international trade deficiency in domestic production can be met by imports from other countries. For instance, we see Pakistan has not yet attained self-sufficiency in petroleum production. She has to import petroleum from other countries.

  • Certain countries enjoy relative advantages in the reduction of some particular goods or raw material. Due to this relative advantage, each country specializes in the production of that good for which it is most suited.

  • International trade also helps the under-developing countries to industrialize their economies. For they can import required machinery and raw material from the developed countries.

  • International trade also helps in interchanging of goods from one country to another which results in interchanging of ideas too. This interchanging, in turn, helps in promoting better understanding and good will among the different people of the world.

  • International trade makes people realize the dependency of one country on other. Such a feeling compels them to live in peace.


  • International trade also causes some disadvantages. Some of them may be of the following nature.

  • International trade is based on competition which usually leads to ruin with cost factor to domestic industries of a developing country.

  • International trade makes some countries depend upon other over for the essential goods or raw-material to be used for manufacture of consumer goods or capital goods is cut off, the country has to suffer a lot, particularly at the time of war.

  • Same countries exploit their raw-materials for exports. This may look advantageous in the beginning. But in the long-run, it is dangerous because these countries cannot develop their own industries in future for want of the same raw materials.


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