The Effect of Trade Balance on National Income Growth
INTRODUCTION
BACKGROUND OF THE STUDY
The attainment of balance of trade is always a critical factor in the economic development of many nations. This simply means that continuous trade deficits and surpluses are undesirable. The world has become a global village in which different countries interact with themselves and get involved in business transactions and trade. This kind of trade between countries is known as international trade which involves the exchange of goods and services between nations.
Some countries are more or less deficit nations which mean they import more than they export, while some countries produce more than is absorbed by their domestic economy so they export the surpluses. Either of these actions means that a nation is going to have a trade deficit or a trade surplus. Thus, this work is done to examine and find out how the growth of National Income can be affected by trade balance.
STATEMENT OF PROBLEM
Every country wants to be just an exporter of goods and services. But since no man is an island, no matter how much exports a country makes, it still has to import at some point.
Using the national income identity,
Y = C + I + G + (X – M)
Y = National income or GDP
C = Consumption
I = gross investment
G = Government expenditure
X = Exports and,
M = Imports.
From the equation above, the GDP of a country is dependent on consumption, investment, government spending and net exports.
Other variables apart, this paper focuses on how exports and imports affect the GDP. Having a high GDP is the aim of every nation but having the right mix of exports and imports is the problem. Some countries live beyond their means by importing more than they export while some export more than they import. Based on this, this study is conducted to find solutions to the problem which has been identified.
OBJECTIVES OF THE STUDY
The objective of this study is to determine;
1. If trade deficit and surpluses have a positive effect on GDP
2. If maintaining a trade
BACKGROUND OF THE STUDY
The attainment of balance of trade is always a critical factor in the economic development of many nations. This simply means that continuous trade deficits and surpluses are undesirable. The world has become a global village in which different countries interact with themselves and get involved in business transactions and trade. This kind of trade between countries is known as international trade which involves the exchange of goods and services between nations.
Some countries are more or less deficit nations which mean they import more than they export, while some countries produce more than is absorbed by their domestic economy so they export the surpluses. Either of these actions means that a nation is going to have a trade deficit or a trade surplus. Thus, this work is done to examine and find out how the growth of National Income can be affected by trade balance.
STATEMENT OF PROBLEM
Every country wants to be just an exporter of goods and services. But since no man is an island, no matter how much exports a country makes, it still has to import at some point.
Using the national income identity,
Y = C + I + G + (X – M)
Y = National income or GDP
C = Consumption
I = gross investment
G = Government expenditure
X = Exports and,
M = Imports.
From the equation above, the GDP of a country is dependent on consumption, investment, government spending and net exports.
Other variables apart, this paper focuses on how exports and imports affect the GDP. Having a high GDP is the aim of every nation but having the right mix of exports and imports is the problem. Some countries live beyond their means by importing more than they export while some export more than they import. Based on this, this study is conducted to find solutions to the problem which has been identified.
OBJECTIVES OF THE STUDY
The objective of this study is to determine;
1. If trade deficit and surpluses have a positive effect on GDP
2. If maintaining a trade