Trade refers to the buying and selling or exchange of goods and services between one region
and another in the same country or between one country and another. The former is called
internal trade while the latter is called international trade.
FACTORS WHICH FAVOUR INTERNAL TRADE
- Differences in products produced in the different regions of the country.
- Differences in climate.
- Fertile soil.
- Wide market.
- Common currency.
Divisions of International Trade
International trade is divided into two groups or types. These are:
(a) Import Trade: This trade involves the buying of goods and services from another country into your own country.
(b) Export Trade: This trade involves the selling of goods and services produced in one’s country to another country.
IMPORTANCE OF INTERNATIONAL TRADE
Factors or reasons why countries exchange goods and services include the following:
1. It fosters international cooperation: International cooperation is fostered between two nations which are involved in international trade.
2. Provision of new products: New products that would otherwise have been unavailable in a country are provided.
3. Provision of foreign exchange: Through international trade, countries do get foreign exchange from the sales or export of their goods to another country.
4. Provision of employment: Jobs are provided through activities involved in the exportation and importation of goods and services.
5. Growth of ancillary services: Ancillary services are usually stimulated through international trade like the establishment of Trade Bank and Export Processing Zone (EPZ) in Nigeria.
6. Diffusion of ideas: Through world trade, people from different regions of the world interact and exchange new ideas leading to the acquisition of new ideas.
7. It stimulates production of exportable goods: Export goods or products are easily stimulated through increased production in the source region.
8. Growth of Industries: Through international trade, the growth of industries is enhanced from either the exportation or importation of raw materials for these industries.
9. Improved living standard: Provision of goods from another country can reduce the prices of goods which are easily affordable by the people; hence, standard of living will improve.
10. Generation of revenue: Government generates revenue from import and export duties imposed on commodities involved in international trade.
11. The need to exchange skills and expertise. Through international trade, skills and expertise are exchanged between nations.
FACTORS AFFECTING INTERNATIONAL (VOLUME) OF TRADE
Factors which determine the volume of trade between two countries include:
1. Differences in natural resources: The higher the differences in the presence of natural resources like minerals between two countries, the greater the volume of trade between them and vice versa.
2. Differences in technology: The higher the differences in the level of technology (i.e. comparative advantage of specialization) the greater the volume of trade between two countries and vice versa.
3. Differences in import duties: The higher the import duties imposed on imported goods and services, the lesser the goods that will be imported and vice versa.
4. Differences in the prices of goods: The higher the differences between the prices of goods, the greater the volume of trade between two countries and vice versa.
5. Differences in the prices of goods: The higher the differences between the prices of goods, the greater the volume of trade between two countries and vice versa.
6. Colonial ties: Countries with former colonial ties tend to trade or have favourable trade with their colonial masters e.g. trade between Nigeria and Britain.
7. The need to earn foreign exchange: This also helps to increase the volume of trade between nations.
8. Political consideration: A country may decide to trade with another, based on political consideration e.g. the enthronement of democracy in a nation may warrant a trade relation with another country.
9. Comparative cost advantage: A country as a result of its comparative cost advantage it has over some other countries may engage in a trade relation with another which has lesser comparative cost advantage in the production of certain goods.
EVALUATION
- What are the reasons for trade?
- Mention factors affecting international trade.
REASONS FOR HIGH VOLUME OF TRADE BETWEEN NIGERIA AND DEVELOPED COUNTRIES
High volume of trade exists between Nigeria and developed countries like Britain, U.S.A,
Japan etc. because of the following reasons;
1. Non-Similarity of Products: Both countries produce goods and services which are not similar.
2. High Level of Technology: The increase for high volume of trade between developing and advanced countries is due to the high level of technology in the latter.
3. High Level of Savings: The high level of savings in developed countries makes production cheaper; hence they can easily export their products to developing countries.
4. Colonial ties: The inclination of some developing countries to their colonial masters, has helped to increase the volume of trade between the nations.
5. Differences in import duties: There are higher differences in import duties imposed on imported goods in both countries.
6. Differences in prices of goods: There are higher differences in prices of goods produced by both countries in order to earn foreign exchange. Foreign goods are cheaper than local ones.
7. Preference for imported goods: Developing countries like Nigeria has preference for goods produced by advanced countries; here the high volume of trade.
8. Absence of trade unions: There is absence of trade union between developing and advanced nations; hence, the increase in the volume of trade.
9. Differences in Climate: There is differences in climate which results in the production of different agricultural products.
10. Industrial requirements: The raw materials produced in Nigeria are needed in factories in developed countries.
11. Favourable market: Nigeria has large markets for some goods manufactured in developed countries e.g. computers, electronics.
Factors Which May Limit International Trade
(i) Strained International Relations: Strained international relations between two countries involved in international trade can lead to non-importation or exportation of goods.
(ii) Inadequate production of goods: Inadequate production of goods, either by the importing or exporting country can limit international trade.
(iii) Low demand for products: There will be low sales when the other country’s demand for products is low.
(iv) Inadequate foreign exchange: Inadequate foreign exchange can seriously affect the volume of trade between two countries.
(v) High tarrifs on goods: High tariffs charged by a certain country can affect the rate of import or export of goods to that country.
(vi) Political instability: Political instability in either country can limit the volume of trade. In most cases, there will be no trading at all.
How to Improve Trade Between Nigeria and Developed Countries
(i) Increased international cooperation between both countries.
(ii) Through Technical cooperation between the countries.
(iii) Membership of the same international economic organization.
(iv) Provision of loans to enhance or increase production.
(v) Liberalization and simplification of export/import procedures by both countries.
REASONS FOR LOW VOLUME OF TRADE BETWEEN NIGERIA AND THE REST OF AFRICA COUNTRIES
(1) Similarity in products: Both Nigeria and other African countries produce goods or products that are similar.
(2) Low level of technology: They have the same level of technology; hence, they produce or operate at the same
low level.
(3) Low level of savings: Both Nigeria and other African Countries have low level of savings and this affects their purchasing power.
(4) Preference for imported goods: African countries have that strong preference for imported goods, thereby neglecting goods produced locally.
(5) Colonial ties: Most African countries are still tied to their colonial masters in terms of trade to the detriment of fellow African countries.
(6) Trade restrictions and high tariffs: There are lots of trade restrictions within African countries: hence, a reduction in the volume of trade.
(7) Similarity in Climate: Majority of African countries have almost the same climate: hence, they produce almost the same type of crops.
(8) Existence of regional trade unions: The presence of many regional trade unions tends to create a barrier for international trade among African countries.
(9) Poor transport links: There is poor transportation network, linking African countries and this also, creates some barriers to international trade in Africa.
(10) Differences in currencies: The use of different currencies makes trade difficult.
(11) Political instability: Political instability does not allow them to explore their potentials to the fullest.
How to Improve the Volume of Trade Between Nigeria and the Rest of African Countries:
(1) Encouraging specialization in production.
(2) Formation of an African Economic Community.
(3) There should be improvement in technology.
(4) Encouraging the patronage of locally made goods by other countries in Africa.
(5) There should be protection from foreign competition.
(6) There should be construction of trans-continental transport network.
(7) The saving capacity of the people should be improved by way of salary/wages.
EVALUATION
- What are the reasons for the low volume of trade between Nigeria and other African countries.
- How can these problems be solved?
Problems facing International Trade
1. Inadequate capital: Inadequate capital among the countries involved in international trade may limit the volume of trade.
2. Export of raw materials: Most exports to European markets are mainly in its raw form. This is a major problem to developing countries.
3. Colonial history: The existence of colonial ties between developed and developing countries has posed some problems in international trade.
4. Unfavourable balance of trade: Unfavourable balance of trade could lead to low production of goods by the country affected.
5. Low value of currency: When the value of a country’s currency is very low, such country finds it difficult to transact meaningful trade with another country.
6. High cost of transportation: This has some negative effects on the final cost of finished goods as the consumers will find it difficult to buy.
7. Port congestions: Owing to low management capability to handle imported and exported goods, the ports are always congested.
8. Government policies: Deliberate government policies in most cases can lead to problems in trade between two nations.
Solutions to the Problems of International Trade
The solutions to the problems of international trade between countries are:
1. There should be political stability in the country.
2. Countries should sign treaties and peace accords.
3. There should be reduction in tarrifs.
4. There should be proper government policies on trade restrictions.
5. Well trained port personnel should be employed to handle port management.
6. Loans should be granted to facilitate trade.
7. Processing facilities should be provided to process the raw materials to finished goods before export.
Remedies for unfavourable balance of Trade
A country with an unfavourable balance of trade can take certain steps to improve it. These steps may include:
(i) Import restriction.
(ii) Tax relief for young industries.
(iii) Bilateral trade agreement.
(iv) Exporting semi finished goods.
(v) Creation of export processing zones.
(vi) Granting of loans to indigenous entrepreneurs.
(vii) Manufacturing of import substitution goods.
World’s Major Ocean (Shipping) Routes
The ocean navigation is the major means of transportation used in international trade.
The following are some of the major ocean trade routes:
1. The North Atlantic Route: This is the busiest and the most important route that links two most populous and heavily industrialized parts of the world (Western Europe and Eastern part of North America). About 1/10 of the world’s shipping trade and about half of the world’s major ports are located in these regions.
2. The Panama Canal Route: This is a domestic route between the east and west coasts of the U.S.A.
3. Trans-Pacific Route: This route is the longest in distance and has increasing significance in view of the rapid economic development of the West – U.S.A, China, Japan, Australia, etc.
4. The South African or Cape Route: This is the oldest route. It serves Europe through South America to Colombo.
5. The South Atlantic route: This is an important east-west route between South America, Europe, West Africa and South Africa. The largest volume of trade is between Eastern Brazil and Argentina.
6. The Mediterranean – Asiatic route (Suez Canal route)
7. The North pacific route.
NIGERIA’S TRADING PARTNERS
Nigeria’s trading partners are mainly with the advanced countries. These include:
1. Western Europe: The countries are Britain, Germany, France, Italy, Holland, Spain, Portugal, Belgium, Netherlands, etc. Britain is Nigeria’s first and most important trading partner. The sea-route through which Nigeria and Europe exchange their products is through the North Atlantic Sea route.
2. The North and South America: The countries include U.S.A. Canada, Brazil, Venezuela, Argentina, etc.
The sea-route through which Nigeria and America exchange their products is the South Atlantic route.
GENERAL EVALUATION QUESTIONS
1. List three major countries outside Africa that trade with Nigeria.
2. Choose any one of these countries and namethree major products which Nigeria imports from her.
3. Discuss two factors responsible for the present pattern of trade between Nigeria and that country.
4. With specific examples, give four reasons why countries exchange goods and services.
5. Account for the low volume of trade between Nigeria and the rest of Africa.
Reading Assignment
Essential Geography, pgs. 225-226.
WEEKEND ASSIGNMENT
- Light industry is predominant in West Africa because of (a) inadequate capital (b) sparse population (c) inadequate power supply
- The role of transport in economic development of any nation include all except (a) national disintegration (b) movement of goods and services (c) opening up new areas
- Which of the following is the major export commodity of Nigeria? (a) cocoa (b) palm oil (c) crude oil
- All are commodities exported by Nigeria except (a) groundnut (b) corn beef (c) rubber
- All are benefits of international trade to Nigeria except (a) makes the country a dumping ground (b) increases foreign exchange (c) creates employment
THEORY
On a map of Nigeria, locate
- An area of cocoa production.
- An area of oil palm production.
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