Trade centers on the exchange of goods and/or services. Exchanges may take place between two parties (bilateral trade) or amongst more than two parties (multilateral trade). In its original form trade necessarily used barter and the exchange of goods and services and recognized equal value desirable to both parties. Modern traders generally negotiate through the use of a medium of exchange, i.e. money, and rarely through barter: as a result one can separate buying and earning from selling. The invention of money (and subsequently of credit, paper money and non-physical money) greatly simplified and promoted the development of trade.
Most economists accept the non-obvious theory that trade benefits both parties, and reject the notion that all exchange must exploit one party. Trade exists largely because differences exist in the cost of production of some tradable commodity in different locations. As such, exchange at market prices between locations benefits both.
Empirical evidence for the success of trade can emerge when contrasting countries such as South Korea, which has adopted a policy of export-oriented industrialization, with India, which has historically pursued a more inward-looking policy, though it has nowadays begun to open up its economy. Countries such as South Korea have fared much better (when measured by economic criteria) than India, and others, over the past fifty years, though its success also has to do with effective state institutions.
History of Trade
Organisation of Trade
Different patterns of organising and administering trade include:
- State control - trade centrally controlled by government planning.
- Guild control - trade controlled by private business associations holding either de facto or government-granted power to exclude new entrants.
- Free enterprise - trade without significant central controls; market participants engage in trade based on their own individual assessments of risk and reward, and may enter or exit a given market relatively unimpeded.
Types of Trade