What is Balance of Trade?
Balance of Trade refers to the difference between the Export and Import of Goods. Exports are listed on the credit side (positive items) and Imports are listed on the debit side (negative items).
Balance of Trade = Exports of Goods – Imports of Goods
Balance of Trade is just a part of the Balance of Payment but plays an important role in understanding the BoP of the country. It is also known as the Balance of Visible Trade and Trade Balance.
Balance on Balance of Trade
Generally, the Balance of Trade has balanced itself; but sometimes the value of exports is not equal to the value of imports. Therefore, the Balance of Trade (BoT) can be surplus (positive) or deficit (negative).
- Surplus Balance of Trade (BoT): If the exports of goods of a country are more than its imports, then the Balance of Trade is said to be in surplus. It means that the balance of trade is favourable for the country.
- Deficit Balance of Trade (BoT): If the imports of goods of a country are more than its exports, the Balance of Trade is said to be in deficit. It means that the balance of trade is unfavourable for the country.
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