Densely populated countries have large volume of internal trade but may have a relatively small volume of internal trade as whatever is produced locally is consumed. For example China produces a lot of rice but doesn't export it. A large population also provide a large market for imported goods but if the purchasing power of the people is low the demand will be low. Population determines the provision of labour for both agricultural and industrial production of commodities.Culture also affects the type of commodities traded e.g beverages such as alcohol and pork products are prohibited some countries hence low demand.
Countries that export agricultural products (developing countries) in raw form, fetch low prices in the international markets. Such countries import manufacture products such as machineries, motor vehicles and pharmaceuticals which are highly priced in international trade hence creating an advance balance of trade. Countries that export manufactured products have favorable balance of trade due to high price of their products. They import agricultural products which are low priced in international markets.
Transport and communication.
Adequate and efficient means of transport and communication are essential for successful trade.Goods have to be moved from the producers to consumers.Means of communication such as telephones, facsmile and internet enhance communication efficiency in trade.
Most developing countries have inadequate capital.This hinders large scale production of commodities thus limiting international trade. Where there is a lot of capital, more and efficient production techniques can be put to use thus reducing cost of production.
Trading prospers when security is assured. When there is more security in country it creates an environment which is conducive for trade. In case of insecurity trade is limited.
Trade among countries can only take place if the countries involved relate well. Political hostility between countries discourage trade and sometimes lead to total bans e.g Iraq under the rule of Sadam Hussein suffered trade sanctions because of her military invasion of Kuwait.
Different currencies among countries can act as a barrier to trade because of varying rates of exchange e.g the fluctuating rates of exchange experienced in Kenya in 2004 made the imported goods very expensive.When a common currency is in use in a region e.g European Union Countries, transactions between the countries become easier.
Developing and industrialized countries are at different levels of economic development.This means that they produce different goods.The difference in value resulting from such trade (agricultural goods/manufactured products) is responsible for the adverse balance of trade especially in developing countries.
Existence of aid to trade.
Therefore banking and warehouse facilities promote trade.
Demand refers to the desire or need to purchase a particular good or goods.Only goods on demand are stocked by traders.Supply refers to availability of goods. The presence of goods encouraged traders to buy go services and make them available to those who need them.
Major exports and imports of Kenya.
In this session we shall identify the major imports and exports of Kenya.Most of the exports of Kenya are agriculturally based while the imports are mainly manufactured goods. The table provided shows major imports and imports.
This refers to how trade impacts on the social, political and economic spheres of country.
Trade makes goods available where there is demand. This stimulates specialization in the production of goods since each region produces the commodities in which it has comparative advantage leading to industrial development. The country's economy is diversified products are exported thus earning foreign exchange for development of other sectors such as education and health care.
A high demand for goods both locally and abroad stimulates industrial growth. This is because more industries are set up in order to satisfy the increased demand for goods.
Trade stimulates specialization in production of goods. This leads to production of quality products.
External trade enables the country to earn income or exchange. The revenue got from this trade is used to set up industries to increase its exports and hence more revenue. The foreign exchange is also used to develop the other sectors of the economy.
The government earns revenue by charging sales tax on manufactured goods sold locally e.g. Value Added Tax (VAT) charged on goods and services rendered within custom duties or tariffs are also charged on import goods at the point of entry into the country.
Creation of employment.
Domestic trade creates employment opportunities in such areas as wholesale and retail shops. Many Kenyans are also employed in sectors dealing with foreign trade such as customs and in cleaning and forwarding firms.
Efficient means of transport and communication are required for trade to succeed. Kenya is trying to improve her transport system by building new roads and maintaining the existing rail, air and water transport. Telecommunication services have also been expanded to enhance trade e.g. through internet.
Market for goods.
Trading ties with other countries provide probable outlet for a country's surplus production thus encouraging more production of commodities leading to economic growth. The diagram below shows Kenya trading ties with other countries