international and internal trade

international and internal trade, International trade also known as foreign trade or external trade involves the exchange of goods and services between two or more countries.

            PERFORMANCE OBJECTIVES on international and internal trade

At the end of this chapter, students should be able to:

Explain how domestic trade differs from international trade.

Discuss the comparative cost basis of international trade.

 Explain the limitations of comparative cost theory of international and internal trade .

Explain terms of trade and discuss the instruments of foreign trade protection.

Explain the features of the various forms of economic integration.

 Discuss the problems of economic integration in Africa.

 Discuss the main issues in the New International Economic order.

 Outline the trend and structure of Nigeria’s external trade

.international and internal trade, home trade commerce


International trade also known as foreign trade or external trade involves the exchange of goods and services between two or more countries. The principle underlying the buying and selling between one country and another is specialization.

The theory of international trade, therefore, is based on the principle of comparative cost as propounded by David Richardo. The theory states that a country should specialize in the production of goods and services for which it has cost advantage over another country. This, he pointed out will bring about the production of goods at cheaper cost.

For example, purchases goods like automobiles and electronics from overseas countries and sells commodities like cocoa, groundnut and crude oil to them.


There are two major types of international trade. These are:

  •  Bilateral international trade: Bilateral international trade is a trade agreement in which two countries

exchange goods and services. It occurs when each country tries to balance its payments and receipts separately and individually with each other. Multilateral international trade: Multilateral international trade is a type of international trade in which a country trades with many other countries. This ensures international division of labour. It is a type of trade in which many countries exchange their goods and services e.g. Nigeria trades with USA, Britain and Japan. Multilateral international trade is necessary

  • of world trade is to be raised to its maximum.


Definition: Internal trade, also known as domestic trade or home trade involves the exchange of goods and services among the people within a particular country. Internal trade involves the buying and selling of goods and services within a particular country e.g. Nigeria.

The items of Internal trade include those goods which are produced and sold or locally. In Nigeria for example, the , are yam, coffee, maize and rice which are locally manufactured goods.



 Both international trade and internal trade involve the use of money as a medium of exchange.

 They both involved a degree of specialization between the trading partners, since specialization causes exchange.

Both forms of trade involve the activities of middlemen.

Both trades involve the buying and selling of goods and services.

 Both of them arise due to inequitable distribution of natural endowments and production resources.

 Differences types of trade

Foreign trade involves the exchange of goods and services across national frontiers while internal trade involves the exchange of goods within the borders of a country.

In foreign trade, buyers and sellers use different currencies whereas buyers and sellers in home trade use the same type of currency.

There is possibility of restriction – tariffs, import duties, export duties, quotas, embargoes – when goods are exchanged across national boundaries while this does not occur in home trade.

 There are differences in systems of weighing and measuring in one country vis-a-vis another. A country has only one system of such weighing and measuring.

 Differences in transport cost due to distance between buyers and sellers, documentation requirement, need for insurance in respect of foreign trade distinguish foreign trade from home trade.

 There are also differences in legal systems and culture under international trade but the legal system are the same in domestic trade.

 Foreign trade requires knowledge of new languages and interpretations while in domestic trade, a common language is used.

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