MONEY MATTERS

We all have the question why do nations trade, will they not be able to produce their own requirements. The answer to all this is that, the present day world of unlimited wants, no nation can produce all goods and services by itself. Nature has distributed the factors of production unequally over the earth, in the same way as personal endowments from person to person differ. The unequal distribution of natural resources and the regional differences are the primary reasons for the existence of international trade.
Countries of the world differ in terms of natural resource endowments, climatic conditions, mineral resources, labour resources and also capital resources, besides technological capabilities. All these differences lead to situations where some countries can produce some goods and services more efficiently than others; and no country can produce all the goods and services in the most efficient manner.
For example, Japan can produce electronic goods and automobiles more efficiently than any other country in the world. Malaysia can produce rubber and palm oil more efficiently than other countries. Their capacity to produce these goods is far in excess of their capacity to consume them. Therefore, Japan and Malaysia could export their goods to other countries at relatively lower prices. Brazil and Thailand can import these goods from Japan and Malaysia and in return export coffee and rice to Japan and Malaysia at a lower price. Thus, regions rich in coal and iron can specialise in the production of these goods and the regions, best suited for cotton cultivation develops in textile industry. This forms the basis for international trade.

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