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Home Theory of International Trade Home Trade and International Trade

Home Trade and International/Foreign Trade:


Definition of Home Trade:


"Trade by a company within the country in which it is based, is known as home trade or domestic trade".


In the home trade, people try to specialize in the production of those commodities in which they have a comparative advantage.


Definition of International/Foreign Trade:

"The business of buying and selling commodities beyond national borders, is known as international/foreign trade".

Difference Between Home Trade and International Trade:

International trade like the home trade, it is said, is the result of division of labor and specialization. In the home trade, people try to specialize in the production of those commodities in which they have a comparative advantage. This is also what exactly happen in the international trade. In internal trade, people try to buy commodities from those markets which are the cheapest ones. So is also the case in international trade. Both in internal and external trade, exchange of goods takes place between persons with the only difference that in international trade people live in two different independent countries. The fact is that difference between home trade and international trade is only a matter of degree rather than of kind.


Those economist who differ with the above view state that there are some important points of difference between home trade and international trade and so, they say the international trade should be treated separately from home trade. The important points of difference between home trade and international trade are:


(i) Mobility of Labor and Capital: One very important difference between home trade and international trade is that labor and capital are not so mobile between different countries as they are in their own countries. Labor generally does not like to migrate from country because of differences in language, family ties, patriotism, customs, monetary systems, religious, social conditions, etc., etc. In recent years, the tightening of immigration laws has further affected the mobility of labor.


Capital is comparatively more mobile than labor because it is not subject to personal preferences. It can be invested abroad if the rate of return is much higher than what it can obtain in its own country. Even in case of capital, most people prefer to invest the savings at home due to a greater sense of security. The result of this greater immobility of labor and to a smaller extent of capital is that the rates of remuneration of the factors of production differ in different countries. These, countries become non-competing groups and so there arises basis for international trade and thus a need is felt for a separate theory to explain its course.


(ii) Barriers to Foreign Trade: Another reason for formulating a separate theory of international trade is that within a country there are no restrictions placed on the movements of goods from one place to another and if some restrictions are placed they are not of the same degree as that on the goods imported from abroad. Foreign trade is subject to various kinds of restrictions like tariff duties, exchange control, quota restrictions, etc., etc. It creates problems which are different from those of home trade. Hence, there is some necessity for have a separate theory of international trade.


(iii) Currency Differences: Every country has got its own separate currency system. When goods are exchanged between different countries, there arises a problem of exchanging currency of one country with the currency of another country. This problem of foreign exchange is absent in all internal transactions. Hence, there is a need for a separate theory of international trade.

Relevant Articles:

Home Trade and International Trade
Foreign Trade and National Income
Origin and Purpose of International Trade
Theory of Comparative Cost
Gains From International Trade
Modern Theory of International Trade
Terms of Trade
Advantages and Disadvantages of International Trade


Principles and Theories of Micro Economics
Definition and Explanation of Economics
Theory of Consumer Behavior
Indifference Curve Analysis of Consumer's Equilibrium
Theory of Demand
Theory of Supply
Elasticity of Demand
Elasticity of Supply
Equilibrium of Demand and Supply
Economic Resources
Scale of Production
Laws of Returns
Production Function
Cost Analysis
Various Revenue Concepts
Price and output Determination Under Perfect Competition
Price and Output Determination Under Monopoly
Price and Output Determination Under Monopolistic/Imperfect Competition
Theory of Factor Pricing OR Theory of Distribution
Principles and Theories of Macro Economics
National Income and Its Measurement
Principles of Public Finance
Public Revenue and Taxation
National Debt and Income Determination
Fiscal Policy
Determinants of the Level of National Income and Employment
Determination of National Income
Theories of Employment
Theory of International Trade
Balance of Payments
Commercial Policy
Development and Planning Economics
Introduction to Development Economics
Features of Developing Countries
Economic Development and Economic Growth
Theories of Under Development
Theories of Economic Growth
Agriculture and Economic Development
Monetary Economics and Public Finance

History of Money


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