Causes of BOP Disequilibrium, Types of disequilibrium

1. IN BOP

2. A disequilibrium in the BOP means it is condition of
Surplus Or deficit
Surplus in the BOP occurs when Total Receipts
exceeds Total Payments.
Deficit in the BOP occurs when Total Payments
exceeds Total Receipts.
BOP DISEQUILIBRIUM
Thus, BOP= Favourable
CREDIT>DEBIT
Thus, BOP= Unfavourable
CREDIT<DEBIT

3. Temporary
causes
National
Income
Inflation
Economic
Development
Borrowing and
Lending
Change in
exchange rate
Political
factors-like
instable govt.
CAUSES OF DISEQUILIBRIUM IN BOP

4. 1. Temporary Causes
It arises due to variations in the trade, effect
of weather on agriculture production etc.
2. National Income (the total amount of money earned
within a country) - Change in country’s national income leads to
disequilibrium
National income decreases=
Increases in imports=
Deficit in BOP
CAUSES

5. 3. Inflation
If there is inflation, prices of exports
increase, thus increase in export prices leading to
decline in exports and rise in imports result in
adverse.
→
CAUSES

6. 4. Economic Development
A country’s balance of payments also
depends on its stage of economic development. If a
country is developing it will have a deficit in its
balance of payments.
CAUSES

7. 5. Borrowings and lending
A country which gives loans and grants on a
large scale to other countries has a deficit in its
balance of payments on capital account.
On the other hand, a developing country
borrowing large funds from other countries may
have a favourable balance of payments.
CAUSES

8. 6. Change in exchange rate
This change arise due to change in exports
and imports. If exports are more then imports →
demand for its currency increase (exchange moves
in favours).
On the other hand if imports are more than
exports the → demand for the foreign currency
increase (exchange moves unfavour)
CAUSES

9. 1. Cyclical disequilibrium
Prosperity, recession, depression & recovery
2. Structural disequilibrium
Change in taste, technological advancement,
declaration of war, natural calamities
3. Short run disequilibrium
Troubles of calamities failures, earthquakes,
strikes, lockouts
4. Long run disequilibrium
Secular which occur over the long term.
Secular trends are not seasonal or cyclical. Instead, they
remain consistent over time.
TYPES OF DISEQUILIBRIUM

11. Too much disequilibrium leads to deficit
trade position. It brings fall in country’s
growth.
It exhibits low competitive strength.
CONCLUSION

12. MEASURES
• Deflation
• Devaluations
• Exchange rates
• Depreciation
1.Monetary
measures
• Export promotions
• Import control
• Quotas
2. Trade
measures