Differences Between Internal And International Trade
There are certain special features, which differentiate internal trade from international trade. They are explained as following manner:
Demand and Supply: Demand and supply cannot work out their full effects where foreign trade is concerned. Where as such factors can work out their full efforts in the case of internal trade.
Artificial Barriers to Trade: The natural difficulties may be increased by artificial barriers to trade, either through prohibitive laws as in war time of through customs duties or protective tariffs in the context of international trade.
Differences in Economic Environment from country to country: Different countries have different facilities in carrying out their productive activities. Differences in system of national and local taxation, regulations for health, sanitation, factory organisation, education and insurance, policy regarding the transport and public utilities, laws relating to industrial combinations and trade, etc., do exist as between countries. These differences bring about a difference in the costs of production between them.
Currency differences are still more important because of the fact that exchange is thereby hampered. For instance, if an Indian manufacturer wishes to sell goods in the U.S.A or English, he must know the value of the U.S.A or England currency units in terms of Indian money. Apart form this, each country is under the control of a separate central bank, each following a separate monetary policy which may greatly affect the foreign trade of the country.
The geographical and climatic conditions may give rise to territorial division of labour and localization of industries. Some countries may have natural resources is abundance such as iron ore, coal, etc., whereas in some other countries climatic conditions give advantages to them.
Long-distance: International trade is predominantly long-distance. This may affect the transport costs and the mobility of the different factors of production.
Preference: Preference for home and the prejudice against foreigners remain as one of the major factors that would explain as to why the rates of earning of the different of equal efficiency would not be equalized between different countries.