Before discussing the difference between domestic and international trade, let us know about Trade.
What is Trade?
The exchange of goods and services from one people to another in which both of them are equally satisfied is called Trade. For example, two common men (Ahmad and Ali): Ahmad has food but needs wool, whereas Ali has wool but needs food. So, Ahmad and Ali will exchange goods with each other so that Ahmad gets wool and Ali gets food making both of them satisfied.
International and domestic exchange are basic types of trade. As people exchange from one place to another to earn profit. If the exchange is done within the country then it is called Domestic Trade. For example, if traders in Islamabad send or receives goods from traders in Lahore, then it is called domestic trade. However, if goods are exported or imported by a country with the other country, then it is called International Trade. For example, Pakistan exports cloth, cotton, rice and imports machinery, and chemicals, etc.
Difference b/w Domestic & International Trade
Following are the major differences between domestic and international exchange
Mobility of Labour and Capital
The mobility of labor and capital is smooth in domestic exchange While in International exchange labor and capital are not allowed to move freely from one country to another.
Different Currencies
In domestic exchange, traders use currency issued by the state bank of the country to exchange goods throughout the country. However, in international exchange, exchange rate fluctuations may create hurdles to smooth trade.
Exchange Restrictions
In domestic exchange, restrictions (tariffs/taxes) are not imposed on the exchange of goods between the cities. However, in international exchange, some restrictions are imposed to protect their industries from certain items
The difference in Government Facilities
The government may give some facilities to local traders. Like, as tax concession, and transport facilities. However, no concession is given to international traders
Exchange Agreements
No exchange agreements are required in domestic exchange. However international exchange must require some exchange agreements.
Exchange Policy
No exchange policies are made for local traders. However international traders have to deal with trade policies.
Transportation Cost
In international exchange, heavy transportation cost is intricate due to long distance and difference in the exchange rate. While transportation cost is smaller in domestic exchange.
