What is foreign trade

Foreign trade which is also called international trade, external trade refers to buying and selling across the border of a country i.e. trade between buyers and sellers at least two different countries. Foreign trade can be either export or import. Export means, selling goods or services abroad i.e.  The seller is resident in the country while the buyer is resident in another country. Import on the other hand refers to buying of goods or services from abroad i.e. the buyer is resident in the country while the seller is resident in another country.


  1. What is international trade?

Differences between Home Trade and Foreign Trade

S/NDomestic TradeForeign Trade
1.It is the trade within the countryTrade with other country
2.It is not subject to restrictionThere are restriction
3.The same currency is used to
transact trade
Different currency is used
4.It involves short distanceIt involve long distance
5.Same weight and measures
are used
Different measures and
weights are used
6.The same language is used and
there is no language barrier
Different languages are
used and there is language
7.There is free mobility of labourThere is restriction to
8.Goods are moved within the
same boundaries
Goods are moved beyond
geographical boundaries

Similarities between Home Trade and Foreign Trade

  1. Both are facilitated by aids to trade
  2. Currencies are involved in both case
  3. Both involves the act of buying and selling of goods and services
  4. Both are division of trade.


  1. Give two similarities and difference between home and foreign trade.

Measures to Promote Export Trade

  1. Promotion of credits facilities to the exporters
  2. Currency should be devaluated to make export cheaper than import
  3. Export promotion Agency will be set up by the government I other to encourage exportation
  4. Companies that are export based should be given incentive and holiday.
  5. Export levied on food items should be reduced in order to encourage exportation
  6. Communication and transportation facilities should be improved on to make them more efficient
  7. The existing sea and air-port should be improved.

Entre-port Trade

This is the re-exporting of goods that has been imported from other countries. Goods imported to a country are later re-exported to another country.

Functions of the Nigeria Export Promotion Council

Export Development Activities

Nigeria export promotion council introduces measures to increase the volume and quality of goods to be exported

(i) Activities relating to export marketing: It helps to provide information Nigeria exports in the international market and how to improve its marketability.

(ii) Export funding: It provides export financing facilities e.g. insurance and credit guarantee schemes

(iii) Provision of trade information: It helps to review existing products for export and also to set out the procedure for exportation.

(iv) Provision of activities that facilitate trade

(v) Publicity function

(vi) Training activities: It organizes seminars and workshops on export management for people engaging in international trade.


  1. List two methods taking by the government to promote export trade
  2. Briefly justify the roles of Nigeria export promotion council.

Forms/Types of International Trade

(i) Bilateral Trade: This occurs when one country agrees to exchange goods and services with another country. It involves buying and selling between two countries e.g. trade between Nigeria and Russia is bilateral trade agreement.

(ii) Multilateral Trade: This involves buying and selling among many countries. It occurs when each nation buys and sells with whatever country it wishes. This result in a greater volume of trade being carried on than in a bilateral trade agreement e.g. Nigeria has multilateral trade agreement with countries like America, China Russia, Britain and Holland.

Reasons for International Trade

(i) Differences in the level of industrialization: The level of industrialization differs from one country to another. Some countries are highly industrialized while some are not. This will bring a disparity in the level of production.

(ii) Inequality in the distribution of national resources: Natural resources are not evenly distributed on the surface of the earth. Different resources are found in different part of the world. Nigeria has crude oil in abundance while Ghana has gold.

(iii) Differences in climatic conditions: One of the reasons for international trade is the difference in climatic condition and weather. Some countries are very cold while some are temperate. Rubber and cocoa are found in the countries that are located in the rain forest while groundnut grows better in the savannah regions.

(iv) Differences in skill and technical knowledge: The level of technology in some country is more advanced than others. Because of their skills and technical knowledge, goods of high quality are produced e.g. Japan is very good in production of automobile and electronics

(v) Differences in level of technology: The level of technology of some countries is more advanced than others. Because of these reasons, goods can be produced efficiently in large quantities and better quality than others. This will necessitate international trade.

(vi) Difference in human resources

(vii) Expansion of world market.

(viii) Difference in the efficiency in the use of natural resources.


  1. Differentiate between bilateral and multilateral trade
  2. Give reasons for international trade.
  3. Give 2 reasons for international trade

Benefits of International Trade

(i) Increase in the total world output: International trade lead to the maximization of output. Specialization gives rise to greater output. Total world output will increase as a result of international trade.

(ii) Source of foreign exchange: International trade is a major source of foreign exchange earnings. By selling goods and services to other countries, a country can obtain exchange earning.

(iii) Increase in revenue: It provides revenue for the countries concerned. More revenue can be obtained from tariffs levied on import and export.

(iv) Increase in specialization: Foreign trade affords nation the opportunity of specializing in the production of goods in which she has comparative advantage. This gives rise to greater output and more standard product.

(v) Efficient allocation of resources: When a country specializes in the production of a commodity in which she may be of great has comparative advantage, it will lead to efficient and effective allocation of resources.

(vi) Equitable re-distribution of resources: Resources from one country may be of great importance to another country. International trade will ensure equitable re-distribution from one country to another.

(vii) Foster friend relationship and world peace

(viii) Expansion of world market

(ix) Increase in the standard of living.

(x) Prevention of monopoly

(xi) Provision of employment

(xii) Acquisition of skills from one country to another.

Disadvantages of International Trade

(i) Excessive production: In foreign trade, each country specializes in what she has comparative advantage. This will increase world output while cost per unit will reduce.

(ii) Collapse of infant industries: International trade may lead to the collapse of infant industries. This industry may not be able to withstand competition from foreign companies which are bigger and more efficient.. Moreover, the product of these companies are cheaper and of high quality than others.

(iii) Importation of dangerous goods: Through international trade, dangerous and harmful goods may be imported the country e.g. hard drug or expire drug

(iv) Lack of employment: Infant industries may not be able to compete with foreign companies and this may lead to retrenchment of workers and the collapse of the industry.

(v) Leads to dependence: It brings over dependence on foreign goods at the detriment of the made goods,

(vi) It encourages dumping: This is the process whereby goods are cheaper and better in a foreign market than in the domestic market.

(vii) Exploitation of poor countries.

(viii) Discourages self reliance.


  1. Of what relevance is international trade to Nigeria economy?
  2. List 4 disadvantages of international trade.

Divisions of Foreign Trade

Foreign trade is divided into three. Namely: Import, Export and Entre port.

  1. Import Trade

This is the process of buying or purchasing of goods items from other country to another. Import trade can be categorized into two, visible and invisible import.

(i) Visible imports:

These are physical or tangible goods purchased from other countries. It includes both capital and consumer goods e.g.

(a) Automobiles

(b) Equipment

(c) Machinery

(d) Rice and

(e) Electronics

(ii) Invisible imports:

These are services provided by other countries. Invisible import cannot be seen physically. Invisible items are as follows:

(a) Banking

(b) Insurance

(c) Payment for travels

(d) Transportation

  1. Export Trade

This is the process of selling the product of the country to another country (abroad). It includes goods and services sold to other countries. Export can be visible or invisible.

(i) Visible exports:

These are tangible goods sold to other nations. Exports from Nigeria to other countries are made up of agricultural product and mineral resources. The goods are sold to other countries without being processed such as:

(a) Crude oil

(b) Cotton and palm oil

(ii) Invisible exports:

These are services sold by a country to other countries of the world. Invisible export cannot be seen or inspected. Examples of invisible export include the following:

(a) Banking

(b) Insurance

(c) Transport


  1. Differentiate between import and export trade

Barriers to Foreign Trade

(i) Ideological differences: Foreign trade will be affected where there is difference in option and political ideology among nations of the world. This will restrict free flow of goods among them.

(ii) Currency differences: Differences in currency is a barrier to international trade. Since it involves two or more currencies, fluctuation in exchange rate and non- availability of foreign currency will impede the flow of goods

(iii) Artificial barriers: The imposition on duties like tariff on goods create barrier. Strict regulation and tariff limit the extent of foreign trade. Goods that are dispatched to other countries will usually pass through some barriers. This will hinder trading activities.

(iv) Distance: International trade involves great distance. Because of the distance between one country and another, the cost of freight will be increased. Moreover, it takes several days or months before goods can be dispatched from one country to another.

(v) Language: Having different languages create barriers. This is a major setback because there would be no effective communication between businessmen from one country to another.

(vi) Cultural problem: The multiplicity of customs and traditions of various countries can keep away businessmen. The culture, beliefs and norms differ from one country to another and this have a negative impact on foreign trade

(vii) Difference in legal system: The legal system operating in one country differs from another country. This may hinder international trade as different countries enact different law.

(viii) Differences in weight and measures

(ix) Poor communication facilities

(x) Political instability

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