This chapter explores the oldest form of international business activity-international trade in goods and services. It looks at the benefits and volume of international trade and discusses the major theories developed for why trade occurs. International trade is the purchase, sale, or exchange of goods and services across national borders. Foreign direct investment is the purchase of physical assets or a significant amount of the ownership of a company in another country to gain a measure of management control. One way to measure the importance of trade to a nation is to examine the volume of trade in an economy relative to its total output.
International trade is an important engine for job creation in many countries.
Trade also helps nations obtain goods and services that are not produced at home or allows them to obtain higher quality products abroad. The volume of international trade continues to increase. Most of the worlds merchandise trade is comprised of trade in manufactured goods. The level of world output of any given year influences the level of international trade in that year. If a country is in recession, people make fewer purchases because of uncertainty about the future and a typically weaker currency relative to other currencies.