Balance of trade

1.  Balance of trade is the difference between the total
value of exports compared to the total value of
imports for a country in a year.
 The balance of trade is calculated by subtracting the
total value of imports from the total value of exports
and the following formula is used for this purpose;
 Balance of Trade = Exports — Imports
Balance of trade

2. Balance of trade
Positive balance of trade
 This is a situation whereby a country's total
value of exports is higher than the total
value of imports.
 This trade situation is described as trade
surplus.
 Most developed countries experience
positive balance of trade due to the
following factors.
 Developed countries are highly industrialised
and are therefore able to make
manufactured goods.
 They export manufactured goods that they
sell at high prices.
 They import raw materials at low prices.
Negative balance of trade
 Negative balance of trade is a
situation whereby a country's
total value of imports is more
than the total value of exports.
 This simply means that the
country is paying more for
imports than it is earning from
exports.
 This situation is described as
a trade deficit

3.  Most developing countries experience negative trade
balance due to many reasons that include the ones
listed below. They:
 have low levels of industrialisation.
 export primary products which have low prices.
 (import manufactured goods which have high prices.
Negative trade balance

4.  Different countries have to devise strategies to address the growing problem of
negative balance of trade.
 Negative balance of trade is a bad economic situation in that it forces developing
countries to borrow from developed countries in order to pay for the imports.
 However, there are some actions that a country can take to improve its trade balance
and these include the following.
 Industrialisation in order to reduce the volume of imported manufactured goods
 Increased production in order to increase the volume of exports
 Search for new resources for export.
 Devaluation of local currency. This is the reduction of the value of local mono against
international currencies. Devaluation of currency makes the country’s exports cheaper
than those of other countries, thereby at trading customers.
 Reduction of importing luxury goods such as expensive perfumes, wines, cigarettes
etc. high import duties also help to limit imports into the country.
Solution to negative trade balance