The Role of International Trade in the Development of the Countries

Abstract

Our study aims to investigate the impact of foreign trade on economic growth and welfare of a country, using foreign trade volume and its coverage (i.e. export versus import) ratio representing foreign trade while gross domestic product per capita and purchasing power parity represent economic growth and welfare. Knowing that foreign trade boosts the whole economy, gross domestic product (GDP) per capita is a good indicator of an economic output but does not reflect the differences in the cost of living of countries. The challenge in this study is to develop more complementary indicators that can help bridge the gap between GDP per capita and economic well-being. Purchasing power parity (PPP) compares different countries’ economic output using a standardized metric based on a common basket of goods and services. Using PPP exchange rates in addition to a country's gross domestic product (GDP) may help to provide a more detailed picture of a country's economic health. Multiple regression analysis was utilised to test the hypotheses of this study. Secondary data was used in this study. The analyses were performed with SPSS. As a result of the data analyses and tests of hypotheses conducted in this study, it has been empirically proven that foreign trade volume and export/import coverage ratio have positive impact on gross domestic product per capita which has a significant impact on purchasing power parity.