BALANCE OF TRADE AND BALANCE OF PAYMENTS

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BALANCE OF TRADE AND BALANCE OF PAYMENTS – An Introduction The balance of payments account indicates a systematic record of all export incomes and import payments of a country during any year. Any import from abroad has to be paid for. On the other hand, any export will bring money flow into the country. If we subtract the total value of the imported commodities from the total value of the exported commodities of a country, what we obtain is called the ‘Balance of Trade’ of the country. If the difference is positive, i.e. if the value of commodity exports exceeds the value of commodity imports, we say that the balance of trade is favourable. If the difference is negative, we say that the balance of trade is unfavourable. Since…show more content…
2. Development efforts- When a backward economy tries to develop, it faces balance of payments difficulties again. Because the various development schemes often require the import of machines, raw materials, etc. Naturally, these push up the import bill. This leads to an adverse balance of payments. 3. Population growth- A country with a high rate of population growth often faces an adverse balance of payments because the total demand for goods and services within the country cannot be met out of domestic production, again necessitating imports. 4. Natural calamities- Sometimes, natural calamities lead to a fall in production in the country. Under these circumstances the country has to import essential commodities to sustain its population. Exports also decline because of the damage to production, creating an adverse balance of payments. 5. Fall in exports due to change of tastes- The amount and the value of exports of a country depends on the foreign demand for the goods produced by the country. Sometimes, due to reasons beyond the control of this country, the foreign demand falls. This will reduce the country’s exports, creating adversity in the balance of payments. 6. Weak bargaining strength- In some cases the terms of trade as well as the volume of trade are determined by the relative bargaining powers of the exporting and the importing countries. If the exporting country is in a weak bargaining position, it fails to get remunerative prices for its

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