THE ROLE OF INTERNATIONAL TRADE IN PRODUCTIVITY AND
THE ECONOMY
1.0 Introduction:
In the context of a country's economy, one prominent discourse is about economic
growth. Although there are also other discourses on unemployment, inflation or
simultaneous increases in the prices of goods, poverty, income equality and so on.
Economic growth is important in the context of a country's economy because it can be one
of the measures of growth or achievement of the nation's economy, although other measures
cannot be denied. Wijono (2005) states that Economic growth is one of the indicators of
development progress.
One of the things that can be used as a driving force for growth is international trade.
Salvatore stated that trade can be an engine for growth (trade as engine of growth,
Salvatore, 2004). If international trade activities are exports and imports, then one of these
components or both can be a driving force for growth. Tambunan (2005) stated that in the
early 1980s Indonesia established a policy in the form of export promotion. Thus, the
policy made exports as a driving force for growth. When international trade is the subject
of discussion, of course, the movement of capital between countries is also an important
part to study. In line with the theory proposed by Vernon, capital movements, especially
for direct investment, begin with international trade (Appleyard, 2004). When international
trade occurs in the form of exports and imports, it will raise the possibility to move the
place of investment place production. An increase in the size of the market, which is
characterized by an increase in imports of a type of goods in a country, will raise the
possibility of producing these goods in the importing country. This possibility is based on a
comparison between the cost of production in the exporting country plus transportation
costs and the costs that arise if the goods are produced in the importing country. If the cost
of production in the exporting country plus transportation costs is greater than the cost of
production in the importing country, then the investor will move its production location in
the importing country (Appleyard, 2004).
1.1 Effects on Production:
Foreign trade has a complex influence on the domestic production sector. In general,
we can mention four kinds of influences that work through it:
1. Production specialization.
2. Increase in "surplus investment"
3. "Vent for Surplus".
4. Increase in productivity.
1.2 Specialization:
Trade International trade pushes each country towards specialization in the production
of goods in which it has a comparative advantage. In the constant-cost case, there will be
full specialization of production, while in the increasing-cost case there will be less
specialization. What needs to be kept in mind here is that specialization itself does not
bring benefits to society unless it is accompanied by the possibility of exchange production
with other goods that are needed.
