International trade develops because certain countries are able to produce some goods more efficiently than other countries. They exchange goods to satisfy their needs and wants. Efficient production may be the result of several factors. A certain climate in a particular country may allow that country to grow agricultural products in large quantities. For instance, the climates in the United States and Canada are suitable for production of large amounts of wheat. Natural resources such as oil or coal are rich in other countries. Countries with a large pool of unskilled laborers are able to produce products which are labor intensive more cheaply than countries with highly paid, skilled labor forces. Another factor is geographical location.
The Scottish economist, Adam Smith, believed that in a free market countries produce whatever they can most efficiently grow or manufacture. In other words, if they can make more money growing cotton than making cloth, they grow
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