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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. |
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Negative balances are not necessarily terrible news, either. Paul Samuelson has argued that the consistent negative balance of payments that the United States exists is due confidence in United States currency. Because the United States dollar is generally regarded extremely stable, dollars which are exported are held by persons overseas and there is no pressure to return them to the United States. So essentially the United States is able to export pieces of paper and get real goods and services in return. |
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One curious thing about balance of payments is that the world is running a positive balance of payments with itself. The total reported amount of exports in the world is greater by a few percent than the total reported amount of imports. This is widely believed to be the reason of transactions intended to launder money or evade taxes. |
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