How Import and Export affect Economy

We all are familiar with the terms imports and exports when it comes to international as well as domestic economy. In this article i will tell you how imports and exports affects the economy.

Imports are an important indicator and a vital component of the economy. A high level of imports indicates robust domestic demand and a growing economy. Let’s take an example – today market has a growing demand for electronic gadgets, clothing, food, automobiles and other consumer goods. Many of them are foreign brands. It is because of imports they are accessible to us. When you purchase these goods, you are paying for these goods and that makes the economy grow. Therefore, a high level of imports indicates robust domestic demand and a growing economy. Now It’s even better if these imports are mainly of productive assets like machinery and equipment. These assets are used for long term productivity and productivity is necessary for an economy to grow.

Balance of Trade - Import Export | Foreign exchange and trade | Macroeconomics

Balance of Trade (BoT)

Balance of trade is the difference between the goods and services imported as well as exported by a country to another countries. So it is basically a record, which keeps a track of the trade between countries. And by trade we mean both import and export of goods and services. 

BoT value can be both negative and positive

Balance of trade has both positive and negative aspects, meaning its value can go in both positive as well as negative number. Let's understand the negative aspect first, suppose you are a country that is importing - that is purchasing goods and services from some other country then you will have to pay a lot of money for that, because you are in the receiving end. Now, if you are providing good and services that is being created in your country and sending it to other countries in fulfilling their needs then you are exporting - here you will receive a lot of money in return because now you are a provider. 

There is also a video that explains about Balance of Trade. In case you want to check out here is the link:- https://www.youtube.com/watch?v=CYlVyIDsWFg

One more important thing that you will have remember when it comes to understanding Balance of Trade is that, if the import is more than the export then the cost is going to be more than the revenue - meaning you will have to pay more in importing than exporting the same good. Let's quickly summarize this topic, a negative balance means a country's import is more than export. which is. Now if the value of balance of trade is in negative that will lead to exhaustion of a country's financial reserve.

What is BRICS | Everything you need to know

BRICS Countries

BRICS, it is the acronym for an association of five major emerging national economies, they are Brazil, Russia, India, China and South Africa. Originally it was BRIC not BRICS, the inclusion of South Africa in the year 2010 made the group BRICS.

India will host the 8th BRICS Summit which will take place on 15-16 October 2016 in the state of Goa. Usually this summit lasts for a day or two to discuss economic issues related to Finance, Trade, Health, S&T, Education, Agriculture, Communication, Labor etc.. so the whole idea is to have a practical cooperation through meetings, which felicitates discussions of their mutual interests. All the member nations of BRICS are also part of G20 summit. Now that’s another international forum for 20 major economies.

So what is it that is so different about BRICS?

It is a well known fact that 43% of the world population comprises of people from these 5 countries. Because then we have 30% of the world GDP and 17% share of world trade being controlled only by the BRICS member countries. Being a part of a group or an organizations is very important, it forms a union of like-minded people, in this case it’s a union of like-minded governments.

BRICS countries world trade contribution

BRICS countries total GDP

BRICS countries total population count

How did BRICS come together? 

The word BRIC was initially coined in a publication written by Jim o’neil, the then chairman of Goldman Sachs. You can read the whole paper here on this website. Then in September 2006, the foreign ministers of Brazil, Russia, India and China met in New York at a general debate of the United nation’s general assembly and kicked off with a series of high level meetings. After four years, that is on June 2009, Brazil, Russia, India and China conducted a full scale diplomatic meeting in Yekaterinburg, Russia. So this meeting laid the foundation and was known as the first BRIC Summit. From India, Manmohan Singh became the first Prime Minister to attend the 1st BRIC Summit. In the same year that is in 2010, South Africa showed interest in joining the BRIC group. Later that year, on December 24, 2010 South Africa officially joined the BRIC group making it BRICS, where S stands for South Africa.

Till now, 7 BRICS summit have taken place:-

1. Yekaterinburg, Russia on 16 June 2009
2. Brasilia, Brazil on 16 April 2010
3. Sanya, China on 14 April 2011
4. New Delhi, India on 29 march 2012
5. Durban, South Africa on 26 march 2013
6. Fortaleza, Brazil on 14 July 2014
7. Ufa, Russia on 8 July 2015
8. Goa, India on 15 Oct 2016

Expectations in the 8th seating of the BRICS forum in Goa, India

India has adopted what we call as the five points approach, and they are:-

BRICS Institution Building

The 1st one is Institution building - basically what it means is that with the help of institutions, the BRICS member countries can constantly interact, participate and develop new models that would benefit each other's economy.

The 2nd one is Implementing decisions from previous Summits - In 2015 BRICS summit held in Ufa, Russia there were decision towards creation of a multilateral development bank which was named as New Development Bank (NDB). The objective of this bank is to support public and private projects through loans, guarantees, equity participation and other financial instruments. This initiative was given by India during the 4th BRICS summit in New Delhi. There is still more work that needs to be done, like the bank will now allow new members to join to increase the share of capital. So many of important decisions need to be implemented.

The 3rd point is Integrate the existing cooperation mechanisms - now Cooperative Mechanism are very important because they provide a framework that compels the member states to cooperate, contribute and share responsibilities. Every member country has their own problems and they can easily get occupied with that, but if they have to keep the BRICS group alive then there has to be mechanism that makes them do so.

BRICS Cooperation Mechanisms

The 4th point is Innovation with the help of new cooperation mechanisms - so in the previous point it was about integrating meaning bringing together the existing cooperative mechanisms, but this point is about innovation, making new frameworks and policies that will bring the member countries together in sharing responsibilities.

and the last 5th point is Continuity, i.e., continuation of existing BRICS cooperation mechanisms - Now this point totally sums up the whole agenda. Consistency, continuity is an important aspect of foreign diplomacy. though big talks and promises often fail to create the necessary impact. Therefore continuity is the key. Members have to be persistence, persuade till the talks become a reality.

Watch the video to understand it in a much better sense:-
https://www.youtube.com/watch?v=QhVFbWeOC6g