International Trade | Economics for JAMB PDF Download

Meaning and Basis for International Trade

International trade refers to the exchange of goods, services, and capital between countries.
Basis for international trade:

• Absolute advantage: A country has an absolute advantage when it can produce a good or service more efficiently than other countries.
• Comparative advantage: A country has a comparative advantage when it can produce a good or service at a lower opportunity cost than other countries.

Balance of Trade and Balance of Payments

• Balance of trade: The difference between the value of a country's exports and imports of goods during a specific period.
• Balance of payments: A comprehensive record of all economic transactions between a country and the rest of the world during a specific period.

Problems associated with balance of trade and balance of payments:

• Trade deficit: When a country imports more than it exports, resulting in a negative balance of trade.
• Trade surplus: When a country exports more than it imports, resulting in a positive balance of trade.

Corrective measures for balance of trade and balance of payments problems:

• Devaluation of currency: Reducing the value of the domestic currency to make exports cheaper and imports more expensive.
• Import restrictions: Imposing tariffs, quotas, or other trade barriers to reduce imports.
• Export promotion: Providing incentives to encourage domestic producers to increase exports.
• Foreign exchange controls: Regulating the flow of foreign currency to manage the balance of payments.

Composition and Direction of Nigeria's Foreign Trade

Nigeria's foreign trade refers to its import and export activities with other countries.
Composition of Nigeria's foreign trade:

• Exports: Crude oil, petroleum products, agricultural products, solid minerals, etc.
• Imports: Machinery, vehicles, chemicals, manufactured goods, etc.

Direction of Nigeria's foreign trade

• Major trading partners: European Union, United States, China, India.
• Focus on regional trade within Africa, particularly through the African Continental Free Trade Area (AfCFTA).

Exchange Rate

Meaning: The price at which one currency can be exchanged for another currency.
Types of exchange rates:

• Floating exchange rate: Determined by market forces of supply and demand.
• Fixed exchange rate: Set and maintained by the government or central bank.
• Managed float exchange rate: A combination of fixed and floating exchange rate systems.
• Pegged exchange rate: Fixed to a specific currency or a basket of currencies.

Determination of Exchange Rates

Exchange rates are determined by various factors, including:

• Supply and demand for currencies in the foreign exchange market.
• Interest rates and inflation differentials between countries.
• Government intervention and central bank policies.
• Economic and political stability.
• Speculation and market expectations.