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because it opens opportunities for individuals and companies to exchange
goods and services.

One way to measure the importance of trade is to examine the volume of

an economy’s trade relative to total output (International Trade Measure).
The value of trade passing through some nations’ borders actually

exceeds the amount of goods and services produced. International trade
has potential benefits for all participating countries. Trade enables each
country to specialise in making and exporting products in which it is

comparatively efficient, while importing products in which it is
comparatively inefficient. This in turn opens the doors to new opportunities

and provides a greater choice of goods and services, for example
importing cotton to the UK, which cannot produce it because of the cool
climatic conditions. Consequently, jobs are created and higher productivity

occurs at a national level, aiding economic growth. In the USA, more than
22,000 jobs are created for every $1bn worth of exports. The post-second

world war period has seen rapid growth in world trade, with most countries
becoming more open. This has meant that import penetration has
increased.

3.3 The differences between domestic and international trade

According to McDonald and Burton (2002, pp. 36–37) it is important to

distinguish between domestic trade and international trade, because the
existence of national borders creates dimensions to international

transactions that are not present, at least to the same degree, in domestic
ones. The following are some of the more obvious differences:

• Differences in language, culture and immigration barriers mean that
capital and labour mobility within a country is easier than between
countries. The movement of factors of production, combined with
differences in their quality and abundance, helps to explain the kind

of goods and services that countries specialise in and the pattern of
trade between trading partners.

• The national currency is generally used in a nation’s domestic
transactions, whereas most international transactions have to be paid