International trade and economic development

International trade benefits the economy in several ways:

1. It allows firms to expand their markets and to increase sales. The greater scale of production lowers their cost and makes them more competitive.

2. International trade exposes firms to international competition and forces them to adopt new technologies and practices to stay competitive.

3. Foreign investment increases as foreign companies can open production facilities in one country and sell their products in other countries.

4. The economy can concentrate on the types of products it is good at and import the rest. In that way its resources are used optimally.

5. Firms can take advantage of cheaper imported goods for their production processes that make them more cost-effective.

Notice the increasing importance of trade for the economy of South Korea.

Notice on the chart below the rapid increase of the GDP of South Korea.
In fact, South Korea is one the prime examples for economic growth based on exports.


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