Trends in Foreign Trade

Trends in Foreign Trade

Foreign trade of a country is gaining importance with the goal of achieving economic development and survival of the fittest with the globalization of the market. Foreign trade becomes more and more important for developing countries. Trends in foreign trade will indicate a country's development ratio. A proper analysis of a country's foreign trade can be studied through the following components: 1. Volume of trade 2. Composition of trade and 3. Direction of trade.

Volume of trade

It refers to size of international transactions. Large numbers of commodities are involved in international transactions. Volume of trade can be measured by adding the money value of all commodities and hence it is also called value of trade. The trends in the value of trade will identify the basic forces at operation in the economy. However, it is necessary to find the changes in the value of trade in relation to i) share of exports and imports in Gross Domestic Product ii) Share of exports and imports in world trade. The share of exports and imports in GDP reflects the nature of trade strategies adopted in the country. The ratio of exports to GDP means supply capability of the economy in regard to exports. It can be called an average propensity to export. The ratio of imports to GDP gives the average propensity of imports.

The share of exports in the world trade indicates the importance of the country as a nation in the world economy. It reflects the market thrust areas to be realized in the midst of competitors in the world market. The changes in the value of exports may be compared to the changes in the value of imports. The relationship between the two variables is known as the terms of trade (TT) i.e. the terms at which exports exchange for imports. If the export value in terms of imports value shows an increase, the TT is said to be favourable. It implies that for a given value of exports, the country can import more. The unfavourable TT implies for a given value of imports, the country has to export more.