Balance of trade

The balance of trade figures are the sum of the money gained by a given economy by selling exports minus the cost of buying imports.

The figures are usually split into visible? and invisible balance figures. The visible balance represents the physical goods, and invisible represents everything else, eg. services.

If the balance of trade is positive, then the economy has received more money than it has spent, which is obviously a good thing. Negative balances are not necessarily terrible news, though. Most advanced economies import physical goods and raw materials such as food. The reason for this is that it is cheaper to buy from other countries where the costs of production are cheaper.

In a country with an advanced economy, primary? and secondary? industries are likely to be depressed, or uncompetitive. Thus they are restricted to niche and specialist goods. [Tertiary industry]? will likely make a lot of money for the country, and specifically employees of such companies. As the general level of wealth in a country rises, the people will demand more and more goods, and these must be imported to satisfy demand. Thus a negative balance of payments can be generated, but is not necessarily indicative of negative economic activity.

Factors that can affect the balance of trade figures include:

Prices of good manufactured at home (influenced by the responsiveness of supply)
Exchange rates
Trade agreements / barriers