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
Definition of International/Foreign Trade:
"The business of buying and selling commodities beyond
national borders, is known as international/foreign 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
(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
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.