This document discusses six key factors that affect international trade: 1) Differences in factor proportions between countries in terms of labor, capital, and land endowments. For example, India has large labor supply while the US and Australia have more capital and land, respectively. 2) Variations in technology use between developing and developed countries, with developing countries currently importing more capital goods. 3) Differences in demand for goods between countries can impact trade even if production costs are the same. 4) Transportation costs influence what countries trade with each other based on proximity of markets. Improved infrastructure has lowered trade costs over time. 5) Product differentiation allows countries to export unique goods and services. 6

1. B.Com Sem V
International Economics

2. Unit-1
Theories of international trade

3. Factors Affecting
International Trade

4. (1) Difference in Factor proportions
 Different countries are differently endowed with the supply of
factor proportions.
 Example:- India - Labour
 USA- Capital
 Australia- Land

5. (2) Differences in Technology
 Technology is used by different countries of the world in
different ways which affects its import and export.
 At present most of the developing countries are importing
capital goods like machinery and equipments. But if they
succeed reducing costs of production in their own capital
goods industries by introducing more efficient technology,
they may begin to export capital goods.

6. (3) Differences in demand
 If the cost of production is the same in two countries
but the demand is different then international trade is
affected.
 Demand can change the direction of trade of any
country. Ex- China and Japan may import rice to
meet the high demand for rice by their people despite
the fact that these countries produce rice at low cost.

7. (4) Transportation Costs

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 The cost of moving goods between markets will influence
international trade
Canada and the U.S. have a close trading relationship
because of proximity to each others’markets
The development and improvement of transportation
networks allows for increased integration
Transport efficiency has increased significantly because of
innovations and improvements in the modes and
infrastructures. As a result, the transferability of commodities
has improved.

8. (5) Product differentiation
 International trade is sustained only because of the product
differentiation.
 If you have a different item or service than other countries
in the world, you will see a positive impact across your
country's trade.

9. (6) Economic policies
 The country's economic policies have a profound effect on
international trade.
 If a country's economic policy is liberal for other countries,
it has a positive effect on the country's imports and exports.

10. Thank You