How Importing and Exporting impacts the economy 
                     HOW  IMPORTING  AND  EXPORTING  IMPACTS  
THE ECONOMY
Introduction
• A country's importing and exporting activity can 
influence its GDP, its exchange rate, and its level 
of inflation and interest rates.
• A rising level of imports and a growing trade 
deficit can have a negative effect on a country's 
exchange rate.
Source: www.investopedia.com
Widening of Market and Raising 
Productivity
• It is argued that the productivity gains arising out 
of extension of market is a consequence of 
foreign trade. 
• Improvements in productivity result from greater 
division of labour, a higher degree of 
mechanisation and greater possibility of 
innovation.
Source: www.economicsdiscussion.net
Helpful for High Growth Potential
• Foreign trade can also help in the development 
of a country enabling it to exchange domestic 
goods saving low growth potential for foreign 
goods with high growth potential.
Source: www.economicsdiscussion.net
Educative Effect of Trade
• A deficiency of knowledge can be a biggest 
handicap in the development of a country and 
this deficiency can be effectively removed 
through contact with more advanced economies 
i.e. by making possible through foreign trade.
Source: www.economicsdiscussion.net
Capital Formation
• The capacity to save increases as real income 
rises through the more efficient resource 
allocation associated with international trade. 
• Foreign trade also provides stimulus for 
investment and thus it tends to raise the rate of 
capital formation.
Source: www.economicsdiscussion.net
Healthy Competition
• Foreign trade also helps in economic 
development by providing healthy competition 
and keeping in check inefficient monopolies. 
• The more competitive an economy is, the more 
efficient it will be.
Source: www.economicsdiscussion.net
Efficient Use of Means of Production
• It provides better ground for efficient use of 
various resources due to its comparative 
advantages. 
• With the development of trade, use of latest and 
improved techniques of production become 
possible in agriculture as well in industrial sector.
Source: www.economicsdiscussion.net
Import of Capital Goods & Export of 
Primary Goods
• Another direct advantages of trade for the 
economic development of underdeveloped 
countries is that these countries can industrialize 
themselves by importing necessary capital goods 
like machinery, semi-finished products and 
industrial raw materials from industrialized 
developed countries.
Source: www.economicsdiscussion.net
Helps in Breaking Vicious Circle of 
Poverty
• The underdeveloped countries are characterized 
by the existence of vicious circle of poverty. 
• But, trade enables underdeveloped countries to 
produce more of those goods in which they enjoy 
greater comparative advantage.
Source: www.economicsdiscussion.net
THANK YOU