Trade GapFill

A key concept in international trade is specialisation.

In the contemporary global economy, nation states are encouraged to focus on the production of a specific good, service or sector of their economy which they are well placed to produce efficiently.. This is known as a nation state's  balance of paymentscomparative advantageexchange ratecosts and prices. In theory, if all nation states do the same, then goods and services will be produced as efficiently as possible, leading to falling  balance of paymentsexchange ratecosts and pricescomparative advantage. In addition, all countries will become reliant on each other for the availability of goods or services in which they do not specialise, leading to an acceleration of international trade and  balance of paymentscomparative advantageeconomic growthexchange rate.

The competitiveness of a country's specialised good or service is dependent on its terms of trade, which means a country's export prices relative to its import prices. A country's terms of trade will, therefore, be heavily influenced by the  exchange ratecosts and priceseconomic growthlevel of inflation affecting prices domestically, and  costs and pricesexchange rateeconomic growthlevel of inflation fluctuations on currency markets. Changes in the terms of trade for a country will have widespread implications on its economy, affecting levels of employment, standards of living, and the  economic growthcosts and pricesbalance of paymentslevel of inflation current account.

Global patterns of trade have changed significantly as a result of the globalisation process. Trade with  developing economiesimport-orientationexport-orientationdeveloped economics has increased substantially, while the emergence of regional  developing economiestrading blocsexport-orientationimport-orientation has intensified trade among geographical partners.