Internal or inter-regional trade means trade between different regions of the same country. It refers to the exchange of goods and services within the political boundaries of a nation. Internal trade is also called home trade or domestic trade.

International trade, on the other hand, refers to the exchange of goods and services between different countries or trade across the political boundaries. It is also known as foreign trade.

International trade takes place because of the following reasons:

(i) Human wants are varied and unlimited and no single country possesses the resources to satisfy all these wants. Hence there arises a need for interdependence between countries in the form of international trade.


(ii) International trade is the result of territorial division of labour and specialisation in the countries.

(iii) Factor endowments vary in different countries.

(iv) Labour and entrepreneurial skills vary in different countries.

(v) Factors of production are highly immobile between the countries.