Reasons For International Trade:

The underlining basis of trade is the same, whether trade takes place between individuals or between business enterprises, on a regional basis within a country or internationally between countries. Under this section we answer the question " Why nations trade?" There have been various answers to this question, some of which are:

(i) From the supply side differences in factor endowment:

Countries are endowed differently e.g. differences in climate and soil, differences in availability of natural resources, differences in capital endowment and differences in labour skills. These differences translate into differences in the abilities of countries to produce goods and services. Some Countries, because of their factor endowment can produce certain goods chapter than other countries. For e.g. Nigeria is endowed with crude oil and natural gas. These can be produced cheaper in Nigeria than in Ghana. Ghana therefore imports them from Nigeria. This is an example of International trade.

(ii) From the demand side, the need to satisfy certain wants.

Countries are faced with demand for goods and services that their factor endowment cannot produce. In order to satisfy these wants they are sourced from foreign countries as imports. Nigeria imports capital equipment for its oil sector from the rest of the world.

We acknowledge here that the bottom line for the existence of international trade is differences in cost of production across countries.