International 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  costs and pricesexchange ratebalance of paymentscomparative advantage. In theory, if all nation states do the same, then goods and services will be produced as efficiently as possible, leading to falling  comparative advantageexchange ratebalance of paymentscosts and prices. 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  economic growthbalance of paymentsexchange ratecomparative advantage.

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 rateeconomic growthlevel of inflationcosts and prices affecting prices domestically, and  economic growthcosts and pricesexchange ratelevel 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 economiesdeveloped economicsexport-orientationimport-orientation has increased substantially, while the emergence of regional  import-orientationtrading blocsdeveloping economiesexport-orientation has intensified trade among geographical partners.