Question

What is meant by Balance of Trade?

Hint:

Do not confuse BOT with BOP.
BOT is a narrow concept focusing only on goods, while BOP is a broader concept including goods, services, and capital transfers.

Answer 1

Step 1: Understanding the Concept:
Balance of Trade is a component of the Balance of Payments (BOP).
It only records "visible" items, which are physical goods that can be seen crossing borders.
Step 2: Key Formula or Approach:
The formula for Balance of Trade is:
\[ BOT = \text{Value of Visible Exports} - \text{Value of Visible Imports} \]
Step 3: Detailed Explanation:
1. Surplus BOT: When exports exceed imports (\(Exports>Imports\)).
2. Deficit BOT: When imports exceed exports (\(Imports>Exports\)).
3. Balanced BOT: When exports equal imports (\(Exports = Imports\)).
Unlike BOP, BOT does not include "invisible" items like services (banking, shipping, insurance).
Step 4: Final Answer:
Balance of trade is the net difference between the export and import of physical goods of a country.