Introduction
Numerous experts are unanimous in stating that globalization is a leading feature of the modern world. This term denotes that numerous nations establish close economic, political, and cultural ties with one another so that physical borders almost disappear. However, globalization is not equal to global trade, which denotes that nations establish a connection for numerous reasons, and a leading one is to receive various advantages. This state of affairs results in high volumes of international trade. According to the official statistical data, the 21st century has witnessed a dramatic increase in this sphere. In particular, the volume of international trade equaled $6.23 trillion in 2001 and $17.71 trillion in 2021 (World Bank, 2021). A more than two-fold growth denotes that countries aimed to engage in this activity more actively and tried to increase their exports. However, the global trend is not the only factor that led to these high figures. Thus, the comparative cost theory stipulates that the developed shipping industry and the availability of resources, including land, labor, and capital, in different countries, promote international trade.
The Theory of Comparative Cost
Since such a significant issue is under consideration, relying on a scientific framework to investigate international trade is reasonable. It seems that the theory of comparative cost is an optimal approach to cope with the task. This framework stipulates that “one must compare the costs of production of two goods in order to completely specialize in the production of the good, which requires the relatively cheapest labor cost of production” (Bouaré, 2020, p. 42). In other words, the given theory mentions that countries engage in international trade because they can provide the global market with goods that are cheaper than their competitors’ offerings.
The presented theoretical assumption is elementary, but it validly explains the international trade processes. Many experts are unanimous in assessing the role of this approach in modern economic relationships. For instance, Weber and Shaikh (2021, p. 434) stipulate that the comparative cost theory “continues to be the foundation of the standard neoclassical theories of international trade.” This evidence denotes that various scholars agree that the desire to spend less money and achieve higher revenues is a powerful driving force in the financial sphere. That is why it is possible to rely on this theoretical assumption to describe reasons for economic relationships among different countries. Thus, the suggested theoretical framework makes it possible to systematize the information presented below to explain the promotion of international trade and countries’ active engagement in this activity.
Resources and International Trade
Various factors contribute to the emergence and spread of international trade. On the one hand, there should be resource inequality between partners. Countries with different amounts, types, and quality of available resources, including materials and workforce, are motivated to stimulate trade. On the other hand, resource availability is another significant driver of international trade. The rationale behind this statement is that producers require suitable territory, a cheap and skilled workforce, and sufficient financial funds to manufacture some products. If all these phenomena are absent, nations have scarce abilities to produce competitive goods and enter foreign trade. That is why the following paragraphs will comment in detail on how and why each of the selected resources is significant.
Land
Land is one of the most significant resources because vast territories open more opportunities for nations. If a country has more lands that are suitable for agricultural activities, it is more likely to produce more goods that can be sold to others. Actual examples support this statement because China and the United States are the world’s largest producers of agricultural products (Dutta, 2020). These states are also among the largest players in the sphere of international trade. In particular, the official statistics indicate that the US account for 8% of the world’s total exports, while China covers 14% (International Trade Center, 2021). These findings indicate that it is possible to identify a correlation between foreign trade volumes and the country’s territory.
One should note that the territory size is not the only decisive factor. When the land is considered, one also draws attention to the availability of natural resources and geographical location (Weinzettel and Pfister, 2019, p. 31). On the one hand, an abundance of such resources is positive because such nations have multiple products to export (Redmond and Nasir, 2020, p. 101591). They also require investments and, for example, imported technology to use the natural resources more effectively, which makes such nations active participants in foreign trade. Riekhof, Regnier, and Quaas (2019, p. 119) also indicate that there is a connection between greater international trade and the availability of natural resources. On the other hand, a geographical location also plays a significant role. A nation more actively engages in foreign trade when it has access to the sea or when it is located at the crossroads of popular trade routes. India is a suitable example here because this nation features an advantageous geographical position, contributing to its active engagement in international trade (Hutak and Hotak, 2020, p. 94). Thus, one should not underestimate the significance of land and its qualities.
Labor
The workforce is another essential factor that actively promotes international trade. The leading reasoning behind this statement is that the availability of labor positively affects foreign trade activities. For example, Mertens (2020, p. 102562) indicates that labor market distortions impact nations’ economic abilities. This suggestion denotes that a country’s engagement in international trade significantly depends on the available workforce volume. A nation with a large population is more likely to produce goods that can be sold to foreign partners. Simultaneously, countries with a low amount of population are typically less likely to enter international trade deals.
However, the population size is not the only significant factor. According to many experts, labor compensation essentially affects the issue under analysis. Jha and Rodriguez-Lopez (2021, p. 103939) stipulate that monopsonistic labor markets contribute to higher volumes of exports. These are the markets where workers earn less than the value of the products they manufacture. Simultaneously, a cheap workforce is considered a powerful facilitator of international trade, and globalization processes play a pivotal role in this scenario (Dadush and Shaw, 2020, para. 1). This statement indicates that countries that do not have to pay more to manufacture a specific good have an advantage over others that are forced to pay high salaries to their local workers. Simultaneously, international trade leads to higher job losses in developed nations because large production facilities are closed in these locations for being financially unprofitable (Batabyal, 2020, para. 5). That is why less economically developed nations offer lower workforce prices that correspondingly lead to reduced production costs. This state of affairs positively impacts the promotion of international trade.
This information can demonstrate that international trade promotes the economic development of some countries because this phenomenon provides individuals with stable income sources. As a result, some people state that workers’ living conditions improve, which is positive for the workforce. However, it is worth admitting that the amount of compensation that individuals receive does not correspond to the volumes of money that are present in international trade. Large corporations or governments absorb a bigger portion of the profits, which denotes that individuals are left with modest remnants. This state of affairs is present because international trade typically relies on a workforce from developing countries, including Pakistan, India, the Philippines, and other states. In addition to low labor costs, these nations feature poor living standards, social norms, and employment laws. This information demonstrates that little attention is drawn to prove that individuals receive fair compensation or are provided with adequate and safe working conditions. Consequently, it is impossible to deny that international trade leads to controversial outcomes for the labor force because individual workers only receive a small percentage of benefits.
Capital
Finally, it is impossible to deny that financial resources are involved in international trade. This statement denotes that nations require some capital to organize the production of goods and enter international markets. According to Yakubu et al. (2018, p. 917), domestic credit opportunities promote foreign trade because this process provides businesses with the required resources to start manufacturing products. These experts also admit that overall economic development also promotes international trade (Yakubu et al., 2018, p. 917). Simultaneously, Syamsi et al. (2020, p. 324) admit that a sufficient money supply positively influences a country’ engagement in international activities. The rationale behind this statement is that nations require financial resources to organize the production of goods and services that would be competitive in foreign markets.
In addition to that, it is impossible to mention that positive conditions in the financial sphere only promote countries’ involvement in international trade. For example, Li, Lan, and Ouyang (2020, p. 102175) indicate that local currency depreciation can motivate nations and organizations to rely on exporting activities more heavily. One can state that these businesses look for stability and higher revenue in foreign markets. Other experts indicate that “whether finance supports or limits international trade crucially depends on the attainment of a certain threshold which is both country and indicator–specific” (Sare, 2021, p. 515). This quotation implies that it is impossible to claim that countries with low financial resources cannot enter international trade activities. In some cases, the absence of abundant resources can denote that labor compensation is low in this country. The previous section has already described that this factor can be a reason for this nation to export cheaper products.
The Role of Shipping
When the issue of international trade is under consideration, it is reasonable to comment on how this activity is performed. In particular, the focus is placed on the transportation means that are responsible for the process. According to the official statistics, maritime shipping is the leading distribution channel. Kalouptsidi (2021, para. 5) states that “ships transport more than 80% of world trade volume and about 70% of trade value.” The rationale behind this situation is that these vehicles allow organizations and nations to deliver their goods timely, safely, and at reasonable prices. That is why it is not a surprise that shipping volumes keep increasing. For instance, Müller-Casseres et al. (2021, p. 121547) indicate that this transportation channel has witnessed a dramatic increase over the previous decades, rising from 2.6 Gigatonnes in 1970 to 11.1 Gigatonnes in 2019. Finally, it is possible to admit the popularity of shipping because specific maritime shipping routes unite multiple world countries (Jiang, Li, and Gong, 2018, p. 83). All these findings indicate that it is impossible to underestimate the role of sea transport in the promotion of international trade.
In addition to that, it is reasonable to identify connections between shipping and the three resources above. Firstly, land determines whether this transportation means is important for a country and can promote trade activities. It has been mentioned above that nations with marine access rely on shipping more actively. For these countries, sea transport is typically a primary route that delivers goods and financial resources. That is why it is not an exaggeration that shipping is a leading promotion of international trade for some nations.
Secondly, shipping also depends on the availability of human resources. Extensive infrastructure is needed to make it possible for a ship to reach a specific land to deliver or receive some products. This statement denotes that countries should have sufficient workers to build a seaport and other necessary facilities. Furthermore, a crew consists of specific professionals who ensure that the goods can be delivered to the destination point safely and sound. There is a robust connection between a state’s engagement in international trade by shipping and its human resources.
Thirdly, it is not reasonable to ignore the importance of available capital and its influence on shipping. If a country has sufficient financial resources, it has more opportunities to create a more developed infrastructure to receive coming ships. Simultaneously, economic advantages allow nations to build their own vehicles to become independent players in the international trade sphere. This information denotes that nations with more financial resources are more successfully involved in global trade.
Conclusion
The paper has commented on the main reasons why nations enter international trade. The literature findings have revealed that resources play a crucial role in this process. In particular, they are land, labor, and capital, and it is challenging to state which is the most significant. It seems that a nation should have a selection of specific features to have suitable conditions to start trading with other countries. For example, vast territories, a cheap workforce, and sufficient financial resources can facilitate a state’s engagement in international commerce. One should also add that shipping plays a significant role in the sphere because up to 80% of world trade volume is distributed by sea transport. Its advantages include safety, reasonable prices, and relatively low transportation times. Finally, it is possible to summarize all these findings and claim that the comparative cost theory explains international trade. This framework stipulates that nations engage in foreign commerce activities when they can bring cheaper products compared to their competitors’ offerings.
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