Benefits of Trading

The Impact of International Trade on Economic Development

The Impact of International Trade on Economic Development

This paper looks at the contribution of international trade to economic development in Nigeria, an emerging country, and finds a key driver of global trade growth’s impact on financial performance. The factors considered here are country size, GDP per capita, export levels, import levels, business regulations, government support, business sophistication and infrastructural development, infrastructural investment, infrastructural construction, technology transfer, foreign direct investment (FDI), and level of government responsiveness and policy responsiveness. The paper then uses a theoretical framework and a spreadsheet program to explore the impact of international trade on growth variables and measures. The results suggest a robust relationship between the size of a country’s economy and its productivity. This relationship’s strength is determined by the amount of trade that flows into and out of the country.


A high level of exports leads to growth initially propelled by an increase in Gross Domestic Product (GDP). However, the trade deficit that develops over time destroys the growth engine, and the country sinks into sluggishness. The importance of a stable balance of trade is again illustrated by the fact that when a country has a trade deficit, it leaves its currency vulnerable to appreciation and depreciation. International trade that leads to a surplus eventually helps the country obtain economic surpluses that help finance development.


The high level of Extention implied by the argument presented above is supported by the experience of other developing countries that have entered into global markets. These countries experienced rapid economic development, followed by rapid economic contraction. They were able to overcome these difficulties by improving their overall performance in international trade. Therefore, the consistent rise in GDP per capita is suggestive of the impact of international trade on economic development. Thus, developing countries to develop rapidly despite the introduction of trade barriers is a crucial indicator of the effect of international trade on growth. The importance of this factor highlights the need for further studies that focus on the impact of international trade on economic performance.

important indicator

Another important indicator is the indirect employment created by a country’s exports. If a government wants to increase employment opportunities, it needs to increase the number of exports it brings into the domestic market. It should not be the case that any increase in exports leads to unemployment because this is not so. Instead, the focus of the analysis should be on the employment created by the domestic consumption of goods manufactured by a foreign country.


A country’s trade surplus can either negatively or positively affect its growth. A negative effect of a trade deficit results from the decrease in the value of the country’s currency due to competition with other exporting countries. This can reduce the local currency’s purchasing power and thus reduce the country’s gross domestic product (GDP). On the other hand, a surplus increases the country’s currency’s value and allows it to purchase more goods. Therefore, a country’s trade surplus is of great importance to the nation’s overall economic health.


The overall growth rate and income levels are influenced by foreign direct investment (FDI) in a country’s economy. If the foreign direct investment is successful, then the country’s companies will develop new technologies, find better uses for existing products, hire new employees, increase research and development, invest in infrastructure, and increase productivity. If the foreign direct investment fails to achieve its intended goals, then there will be a reduction in employment, and investment growth will be slower than desired. However, if the FDI strategy succeeds, then companies will have greater access to raw materials, capital, technology, labor, and other areas that become essential for creating new economic activities.

Trade flows

Trade flows can also affect a country’s currency and the country’s economic standing in the world. Foreign direct investment can significantly boost the country’s gross domestic product (GDP) due to creating jobs and investment in infrastructure and other essential areas. The value of the country’s currency is also affected by foreign direct investment in higher exports. Exports lead to domestic production of virtual goods and services that can be sold on the domestic market. In turn, the government earns additional income because the domestic market is opened to foreign competition. Therefore, the impact of international trade on economic development is not necessarily a negative one if the goal is the uplift of the national economy.


International trade does not necessarily result in low economic development; sometimes, it can lead to growth that outshines the domestic economy’s growth. The key is to bang the right balance between growth and development. Successful economic development means attracting enough foreign investment to attain the primary objectives of economic development.

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