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Definition of Home Trade or Domestic 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 or Foreign Trade:

“The business of buying and selling commodities beyond national borders, is known as international or 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. 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.