One of the ways—the commonest way perhaps—by which an economy can develop from a pre-industrial to an industrial state is to exploit the opportunities open to it from international trade. By selling abroad goods which are in surplus at home in return for goods which are scarce at home, it is possible both to widen the range of goods and services coming on to the home-market and to increase the value of domestic output, and so to improve the national standard of living both qualitatively and quantitatively. In widening the potential market for domestic producers, foreign trade encourages them to specialize, to develop special skills and techniques of economic organization, and to reap the economies of large-scale production. This broadening of their economic horizons constitutes an incentive to greater productive activity and helps to break up the economic inertia which so often inhibits material progress.

For any country the limits to economic growth based on international trade are set by the range of goods which it can persuade its trading partners to buy and by the intensity with which its people desire the goods that foreigners have to sell. In the eighteenth-century world of pre-industrial economies, where each country—each region in some cases—produced most if not all of its own basic needs, international trade was largely limited to luxuries and to goods which were localized in their geographical incidence—wines, tobacco, sugar and high-quality textiles, for example, or fruit, fish and minerals.