Concept of Balance of trade:
Balance of tradeis defined as the difference between the value of exports and the value of imports of a country. It includes only import and export of visible material goods, which have a physical structure, size, shape, and form. These goods can be seen, weighed, counted, and touched. It does not include invisible or non-material goods or services such as transportation, banking, insurance, etc.
According to R. R. Paul, "Balance of trade is the difference between the values of visible exports and imports."
Features of Balance of Trade:
The features of the balance of trade are as follows:
1. The elements of the balance of trade are export and import.
2. It includes only visible goods.
3. Non-material or invisible goods or services are not included in the balance of trade.
Types of Balance of Trade:
Balance of trade can be divided into the following three types:
1. Trade surplus: If the total export of a country exceeds its total import, it is called a trade surplus. It is also known as the favorable trade balance.
Trade surplus = Export (X) > import (M)
2. Trade deficit: If the total import of a country exceeds its total export, it is called a trade deficit. It is also known as the unfavorable trade balance or adverse balance of trade.
Trade Deficit = Import (M) > Export (X)
3. Balanced trade balance: If the export and the import of a country are equal, it is called a balanced trade balance. It is also known as the equilibrium in the balance of trade.
Balanced Trade Balance = Export (X) = Import (M)
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