Difference between Balance of Payment and Balance of Trade
|
Basis |
Balance of Payment |
Balance of Trade |
|---|---|---|
| Meaning | Balance of Payment is a statement of all transactions between entities in one country and the outside world over a specified time period, such as a quarter or a year. |
Balance of Trade refers to the difference between the Export and Import of goods. |
| Components | Balance of Payment includes visible items, invisible items, unilateral transfers, and capital transfers. |
Balance of Trade includes only visible items. |
| Records | All transactions of capital nature are included in the Balance of Payment. |
It records transactions related to goods only. |
| Capital Transfers /Transactions |
All transactions of capital nature are included in the Balance of Payment. |
Transactions of capital nature are not included in the Balance of Trade. |
| Scope | Balance of Payment is a wider concept and includes Balance of Trade. |
Balance of Trade is a narrow concept and is a part of Balance of Payment account. |
| Economic View | Balance of Payment gives a clear view of the country’s economic position. |
Balance of Trade gives a partial view of the country’s economic status. |
| Result | Both receipts and payment side of the Balance of Payment account tallies. |
The result of Balance of Trade can be favourable, or unfavourable or balanced. |
| Settlement | Unfavourable BoP cannot be settled out of favourable BoP. | Unfavourable BoT can be settled out of favourable BoT. |
Difference between Balance of Payment and Balance of Trade
Balance of Payment and Balance of Trade are two important terms that are sometimes confused as the same. The former is a statement of all transactions between entities in one country and the outside world over a specified time period; however, the latter is the difference between the Export and Import of Goods.
Table of Content
- What is Balance of Payment?
- What is Balance of Trade?
- Difference between Balance of Payment and Balance of Trade