The difference between a value of export and imports of a country in a fiscal year is known as Balance of Trade. It is also known as “trade balance” or “international trade balance.” It is the largest component of the country’s Balance of Payment. The balance of trade includes only visible trade which is known as the value of exports and imports registered during the specific time period at the customs office. If the money value of export is greater than the money value of import, then it is said to be a favorable balance of trade. And if the money value of import is greater than the money value of export, then it is said to be an unfavorable balance of trade.
Symbolically it can be expressed as:
M = X → Balanced balance of trade
M > X → Deficit or unfavorable balance of trade
M < X → Surplus or favorable balance of trade
M = value of imported visible goods
X = value of exported visible goods
A systematic accounting system of a country which records all its economic transactions along with other countries of the rest of the world in a given time period is known as Balance of payments. Generally, a time period is one year. The balance of payment records monetary value of the transactions like country’s exports and imports of goods, service, financial capital and financial transfers. It refers to total inflow and outflow of financial transaction made by a country with foreign sectors. Besides, import and export, a country is making various transactions with the foreign sectors on a daily basis. The balance of payment is double entry accounting system that includes debit and credit. All the expenses (outflow) made by the country in one year are considered under debit while all the income (inflow) received by country is kept under the credit. If the total outflow is more than total inflow then it is called BOP deficits or unfavorable (negative) balance of payment. Similarly, if the inflow is more than outflow it is called BOP surplus or favorable (positive) balance of payment.
It includes the following headings:
The comparative cost theory of international trade was developed by a classical economist David Ricardo in 1817. Comparative cost theory of international trade is based on the cost of different production of similar commodities in the different nation due to the geographical division of labor and specialization in production. Due to the different climate and geographical conditions country can produce particular commodity at a lower cost than the other countries.
(Comparative cost theory of international trade)
According to this theory, the international trade between two countries is possible only if each of them has absolute or comparative cost advantage in the production of at least one commodity.
(Comparative cost theory: assumption and criticism)
Khanal, Dr. Rajesh Keshar, et al. Economics II. Kathmandu: Januka Publication Pvt. Ltd., 2013.
Comparative cost theory of international trade. 08 July 2016 <http://notes.tyrocity.com/comparative-cost-theory-of-international-trade/>.
Comparative cost theory: assumption and criticism. 08 July 2016 <http://www.yourarticlelibrary.com/economics/comparative-costs-theory-assumptions-and-criticisms-economics/11069/>.