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World economy is basically is the economy of the countries of the world. The economic development of these countries is measured through various standards of measurement. The economic development is some times measure in the form of world output and international trade in the world. These two frames are used as standard in measuring the economic development in the global world. World output is the quantity of output produced globally with in a given time frame. It can be used as a standard for global economic development in the world as more and more quantity of output produced in the world more it signifies the favorable environment of business and has the positive impact on international trade as well. Trade is also one of important aspects of the world economy as it provided the wide range of choices to different countries to enjoy the luxurious goods. Wide varieties of goods those are not available in the one own country may get traded from the other in order to enjoy the benefits from those products that are not available in these regions. So world output and international trade are interlinked and has very deep effects on a country economy as well.
Relationship between international trade and world output
International trade and world output is closely linked together. More and more global output produced, more the production of products increase, more healthy will be the business environment and as businesses of the world flourish more the production in different businesses increase which will implied positive impact on the output produced in a country that will ultimately increase the trend of international trade in the world. (Ethier, W. J.1982).
1-The close relationship between the trade and world out put can be seen in the case of recession when the spending power of the people will drop and the people will be more concerned about their financial future and less motivated to spend on domestic as well as international products related to import from other countries. The result will be lower the trade. Decrease in world out put reduces the international trade pattern in this way.
2-The other example of closely linked relationship of trade and world out put is when the country is facing recession its monetary value will be decline due to which it can purchase less imported products due to less monetary value of its currency as compare to the other country currency and it will be easy to afford the domestic products as compare to the imports from other countries. This will discourage the trade of the country.
3- It is also analyzed that the rate of increase in the trade is much faster then the world output. One of the main reasons behind this phenomenon is that the traded items are much cheaper then the goods that are not traded. Another reason behind this can be seen that the growth productivity of traded goods are less as compare to the price of these items so that cause increase in the trade faster as compare to the output produced.
Broad pattern of international tradeÂ
Different trade pattern can be seen in different countries depend on their level of development. The trade between the high income countries contributes 60% of world trade. Trade between low and middle income group is only 6 % of total trade and the trade between high, middle and low income countries are contributed 34% of total. This pattern of trade is important to consider in order to verify the trend of trading between different countries and to identify the major countries pattern in international trading. It is very important to confirm that the poor countries or middle income countries are also includes in trade activities and to ensures that weather balance are maintained in rich and poor countries through exchanging of commodities. (Helpman, E.1984)
If trade cut off with other countries
Trade is now becomes a basic economic need without which survival of a country is not possible because this ensures the provision of products that are not available I one own country. In past era the needs are more confined to the products that are produced locally but with modern advancement needs brought up and full filled with the help of trade with other countries having abundant of resources that need to trade. (Balassa, B. 1964),
USA is the country that is importing various products from other countries of the world e.g. Tea, coffee, fruits and vegetables in fresh or in processed form e.g. in the form of pulp or fruit juice, different spices, herbs, nuts and other different dried fruits from Brazil. It also depend on China and Japan for different types of electronics like, TV, DVD players etc. if US suddenly cut off trading with these countries it has to cut off with all the luxurious that are confined with the trade relationship with these countries.
US is it self a great manufacturer of electronics machinery and earn a lot of revenues from the export of this machinery to other countries if there will be no trade between US and other countries then US will suffer in losses and its earning will decline.
A nation can not survive without trading with other nations of the world having abundance of resources and absolute advantage over other. International trade not only helps nations to utilize its resources properly and increase the revenue by exporting of products after full fill one own need but it is the source of enjoying a large revenue from foreign exchange and getting variety of products through exporting. In absence of trade fewer choices will be available, less chances for earning revenue and have to face the recession in the country, which will have adverse effect on a country development.