Countries find it very difficult to produce all the goods and services which they might need and, therefore, have to buy from other countries. These countries concentrateon the production of particular goods and services. Examples of such specialization, which is called international specialization, are given in Fig. 4.
| Name of country Specializing in, for example Saudi Arabia Oil Canada Wheat West Germany Machinery Switzerland Banking Spain Tourism The United Kingdom Insurance |
Fig. 4. Examples of international specialization
As a result of specializing a country produces a surplus, that is, more goods and services than it needs for its own consumption. For example, a country might produce 500 000 cars yet only sells 100 000 of these cars within the country. This leaves a surplus of 400 000 cars. The surplus produced by one country will then need to be exchangedfor the goods and services it cannot produce. Thus the 400 000 cars will be sold to other countries and the money received will be used to buy, for example, the oil that the country needs but cannot produce. Countries, therefore, have to take part in foreign trade which is the buying and selling of goods between countries. For example, the United Kingdom needs to buyfrom other countries for several reasons. Some raw materials do not occur in the United Kingdom, for example, the United Kingdom cannot produce large quantities of gold. The country does not have the right climate to grow certain products. For instance it would be difficult to grow oranges here and it is easier to buy them from countries such as Spain. Some goods would be too expensive to produce, for example, the United Kingdom no longer produces motorcycles because it is cheaper for Japan to produce them. Foreign trade gives the people in the United Kingdom the chance to buy a variety of goods and services from all over the world, such as coffee from Brazil and tourist services from Spain.
The United Kingdom needs to sellto other countries so that foreign currency can be earned, to create jobs and to increase the income of workers. Foreign currency can be earned, for example, from American tourists visiting the country and spending dollars. These dollars can then be used to buy American films which can be shown in the United Kingdom. This applies also to other countries and goods. Jobs are created for the people in the United Kingdom. The incomes of workers are increased which results in higher standard of living because they can afford to buy more goods and services.
