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August 31, 2012

Essay Paper on The Impact of International Trade and Global Economy

The exchange of goods and services is called trade. Trade plays vital role to boost the economy as we know the GDP includes the amount of goods and services produced in the country. The higher trade is done in the country shows the higher living standard of the people of the country as both are correlated. Trade has become the important topic as trade between countries grown up. This trade increased the imports and exports of the countries.
International trade is exchange of capital, goods and services across international territories. International trade has the importance for the economy of any country. International trade involves exchange of goods, services, assets, or money between residents of two different countries or between different countries. International trade deals with the financial dynamics of the trading activity among countries.
There are two theories for analysis on international trade; the theory of absolute advantage and the theory of comparative advantage. The financial dynamics of the trading activity is dealt under the trade theory. It discusses different nuance of trade for the countries involved in trade.  It is very important to globalize the economies as it is essential and desirable. This globalization would benefit everyone. Increase in the trade among the countries provide the benefits to businesses and consumers and boost the economies. Globalization cost is considerable in terms of environmental and social cost when assessing its impacts on expanded world trade. 
The economy, which is based on economies of all the countries of the world is called global economy. Economies of countries make the global economy. It is growing its importance because of the rapid integration of international economic markets. Increasingly, businesses, consumers, and governments realize that their lives are affected not only by what goes on in their own town, state, or country but also by what is happening around the world. Consumers can walk into their shops today and buy goods and services from all over the world. Local businesses have to compete with these foreign products. Many of these same businesses also have new opportunities to expand their markets by selling to a large number of consumers in other countries.
The advancement of telecommunications is also rapidly reducing the cost of providing services internationally, while the Internet will assuredly change the nature of many products and services as it expands markets even further. There are lots of opportunities to the developing countries. They are able to access to market of developed countries. Technologies can also be transferred to them.
Europe stands on number one position in the world as far as volume of import and export is concerned. America stands on second position so we can see the role of two big economies of the world. Their policies are also vital for the global economy as they have the major contribution in the world economy. As per GDP contribution America stands on the first position.
Here is the Top 10, as listed by PPP GDP:
Approximate GDP- Purchasing Power Parity
United States of America
United Kingdom
(Economy Watch)
We can see the rising importance of international trade is to deal with the growth of exports and imports in the world during the last fifty or more years (Feenstra, 2003). Figure 1.1, “World Exports, 1948–2008 (in Billions of U.S. Dollars)” shows the overall exports measured in billions of U.S annually from 1948 to 2008. We know when country exports then other countries are involved in imports; one can see the outstanding growth in outflows and inflows during the past fifty years.
The growth in the value of exports does not necessarily indicate that trade is becoming more important. A better way is to look at the share of traded goods in relation to the size of the world economy.  We can see world exports as a percentage of the global gross domestic product with the help of the given Figure 1.2, “World Exports, 1970–2008 (Percentage of World GDP)”  for the years 1970 to 2008. This figure shows a steady increase in trade as a share of the size of the world economy. Exports of the world grew from just over 10 percent of the GDP in 1970 to over 30 percent by 2008. Trade is not only rising rapidly in absolute terms; it is becoming relatively more important too.
 Countries are dependent on each other as we see the treaties are signed among countries. Countries now frequently use the products of each other as we see the volume of export is growing every year.
Impact of international trade can be seen by the change in the amount of foreign direct investment (FDI). Foreign direct investment is foreign investment for productive activities and thus is another way in which global economy is influenced which can affect a country. Figure 1.3, “World Inward FDI Stocks, 1980–2007 (Percentage of World GDP)” shows the stock, or the sum total value, of FDI around the world taken as a percentage of the world GDP between 1980 and 2007. It is also an indication of the importance of foreign ownership and influence on the global economy. As can be seen, the share of FDI has grown significantly from around 5 percent of the world GDP in 1980 to over 25 percent of the GDP just after twenty-five years.
 The increase in international trade and FDI has been inspired partially by the decline of trade barriers since the Great Depression hit in 1930. Before the World War II, agreements were signed to reduce the taxes on imports. During this era countries promised to reduce the tax on the imported goods. This increased the export and import which extended international trade. The agreements were signed again and proved the importance of international trade on the global economy. International trade has the positive impact on the global economy. World realized the importance of international trade and kept on signing treaties and agreements.
World Trade Organization (WTO) was founded to provide the system to manage the agreements and a forum to deal with the trade matters. The rules and process were implemented to deal with the disputes of trade matters among the countries. World is having the benefits of international trade as its positive impact on the international economy. The role of WTO has been expanding year by year as more countries are becoming the members. Trade liberalization has grown and countries are now frequently trading with each other. Countries help each other to boost not only their own economies but also improve the global economy. More and more agreements are being signed in recent years to promote the trade liberalization. More than two hundred agreements have been reported to WTO showing the great interest of number of countries. Regional organizations founded to promote the trade in the regions.


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