The volume, nature, and direction of global trade are influenced by

(A) Economic advancement

(B) Comparative and locational advantage

(C) Historical factors and investment

(D) Changes in the global market

(E) Geographical distance

Choose the correct answer from the options given below: 

Correct Answer: (A), (B), and (C) only.

Key Points

• A country's balance of trade is defined by its net exports (exports minus imports) and is thus influenced by all the factors that affect international trade. These include factor endowments and productivity, trade policy, exchange rates, foreign currency reserves, inflation, and demand.
• Growth of the international trade has been influenced by many factors followed-up by globalization, such as the development of technology, government decisions, institutions' activities, consumer behavior, increasing competition, new trade agreements, etc.
• International trade allows countries to expand their markets and access goods and services that otherwise may not have been available domestically. As a result of international trade, the market is more competitive. This ultimately results in more competitive pricing and brings a cheaper product home to the consumer.
• If any country is economically not stable then various multination companies are not assured to set up a company. India is preferable to Pakistan to set up a company because of economic stability.
• Comparative and locational advantages are a very important component to construct a company and trading with these countries.
• Historically factors and investments are important factors in trading.

Additional Information

•  Nature of Global Trade involves the import or export of goods and services between international borders. Each country can produce and export goods and services in which it has a comparative advantage and import goods and services in which it doesn't.

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