Trade balance adjustment

Trade balance adjustment (net export adjustment) occurs when goods are traded with foreign countries within the framework of an open economy and the payment flows from import and export match here. The incoming payment corresponds to the outgoing payment. The trade balance adjustment is a model case of foreign trade theory . In reality, a balanced trade balance is rare.

Trade balance adjustment

Economic context

The balance of payments results from the balance of the current account , capital account and foreign exchange or reserve balance . The current account results from the balance of the services account , the transfer account and the trade account. The trade balance occurs in connection with the IS curve , i.e. that is, domestic production equates to demand for domestic goods.

Connections

If the income or domestic demand for goods ( ) increases in an economy and the real exchange rate falls ( ), more goods are imported. The variable applies to the import . ${\displaystyle Y}$ ${\displaystyle \varepsilon }$ ${\displaystyle IM}$

${\displaystyle IM=IM(Y,\varepsilon )}$

The export ( ) depends on the total foreign demand ( ) and the real exchange rate ( ). When total global demand for goods and the real exchange rate increase, exports increase. ${\displaystyle X}$ ${\displaystyle Y^{*}}$ ${\displaystyle \varepsilon }$

${\displaystyle X=X(Y^{*},\varepsilon )}$

This results in the formula for the trade balance ( ) ${\displaystyle NX}$

${\displaystyle NX=X-\varepsilon IM}$.

With these model assumptions, the trade balance has a negative slope in relation to income.

Other trade balances

If domestic imports increase at constant exports due to an increase in domestic demand, this results in a trade deficit

${\displaystyle \varepsilon IM>X}$.

A positive net export leads to a trade surplus and results from the disproportionate increase in the overall demand for goods abroad and a higher exchange rate.

${\displaystyle X>\varepsilon IM}$

Comparison of trade balances

Trade balance comparison between Germany and the USA

Few countries have a balanced trade balance. Germany is considered to be the world champion in exports and therefore usually has a trade surplus. This positive trade balance has been a trend since the 1960s. China and Japan also have positive net exports. In contrast, the growth in imports in the USA, especially since 1996, has made itself felt in an extreme trade deficit. This leads to an increased capital requirement.

application

Domestic demand is increasing

If government spending is increased in an economy , for example in order to boost domestic demand, there is a shift in net exports. The increase in government spending means that there is more demand. As a result, more is produced domestically to meet demand. Since income also increases with increasing production, there is demand not only for domestic, but also for foreign goods. If exports do not increase, but domestic demand for foreign goods increases, a trade deficit arises. In this model, if the production level rises in a country , the trade balance can drop from an equilibrium of import and export (net export = 0) below the zero line to a deficit ( in the lower part of the graph). ${\displaystyle Y}$ ${\displaystyle Y_{H}B}$ ${\displaystyle NX}$ ${\displaystyle C}$

Foreign demand is increasing

If demand increases abroad , there is an increased domestic export of goods. Reasons are, for example, increases in income abroad. The line of domestic demand for goods shifts upwards by the amount of excess exports ( in the upper part of the graph). An increase in the foreign demand for goods does not affect the domestic demand for goods. Due to the assumed less rapid increase in constant domestic demand for goods (flatter curve), a trade surplus results at a higher level of production . If exports increase, the trade balance also shifts by this amount, the straight line for net exports (in the lower part of the graph) shifts upwards by the amount of excess exports ( if positive), if production continues to rise, net exports initially remain above the zero line, the trade balance positive. ${\displaystyle ZZ}$ ${\displaystyle ZZ'}$ ${\displaystyle DD}$ ${\displaystyle Y'}$ ${\displaystyle \Delta NX}$ ${\displaystyle NX}$ ${\displaystyle NX'}$ ${\displaystyle B}$

literature

• Oliver Blanchard: Macroeconomics. 3rd Edition, Massachusetts Institute of Technology, 2003.
• Oliver Blanchard, Gerhard Illing: Macroeconomics. 4th edition, Munich, 2006.
• N. Gregory Mankiw: Macroeconomics. 4th edition, 1999.
• Hans-Peter Spahn: Macroeconomics: Theoretical foundations and stability-political strategies. 2nd edition, Berlin, Heidelberg, New York, 1999.

Web links

• International_Trade.pdf (PDF, 71 kB)

Individual evidence

1. ^ Compare Blanchard, Olivier: macroeconomics. 3rd edition, Prentice Hall, 2003, p. 399.
2. ^ Compare Blanchard, Olivier: macroeconomics. 3rd edition, Prentice Hall, 2003, p. 397.
3. ^ Compare Blanchard, Olivier: macroeconomics. 3rd edition, Prentice Hall, 2003, p. 397.
4. ^ Compare Blanchard, Olivier: macroeconomics. 3rd edition, Prentice Hall, 2003, p. 397.
5. ^ Compare Blanchard, Olivier: macroeconomics. 3rd edition, Prentice Hall, 2003, p. 397.
6. ↑ Thomson Financial Datastream - International Financial Statistics of the International Monetary Fund, March 10, 2008.
7. ↑ Comparison of the archive link ( Memento of the original from December 11, 2007 in the Internet Archive ) Info: The archive link was inserted automatically and has not yet been checked. Please check the original and archive link according to the instructions and then remove this notice. 
8. ↑ Comparison of the archive link ( Memento of the original from December 11, 2007 in the Internet Archive ) Info: The archive link was inserted automatically and has not yet been checked. Please check the original and archive link according to the instructions and then remove this notice. 
9. ^ Blanchard, Olivier / Illing, Gerhard: Makroökonomie, 4th edition, 2006, p. 549.
10. ^ Compare Blanchard, Olivier: macroeconomics. 3rd edition, Prentice Hall, 2003, p. 401, own illustration.
11. ^ Compare Blanchard, Olivier: macroeconomics. 3rd edition, Prentice Hall, 2003, p. 400, own illustration.