Balance of trade



Balance of trade

It is defined as net export i.e. relative export to import. It is systematic records of export and import. The difference between total export and total import of a country in a fiscal year gives balance of trade. On the basis of total export and total import, there are three types of balance of trade. They are

  1. Favorable balance of trade:
    if the total export is greater than total import, the country is said to have favorable balance of trade. In this case, the inflow of money from export is greater than outflow of money due to import. This type of international trade is said to be in surplus.
  2. Unfavorable balance of trade:
    if the total import is greater than total export, the country is said to have unfavorable balance of trade. In this case, the inflow of money from export is less than outflow of money due to import. This type of international trade is said to be in deficit
  3. Zero balance of trade:
    if the total export is equal to total import, the country is said to have zero balance of trade. In this case, the inflow of money from export is equal to outflow of money due to import. This type of international trade is said to be in balance