What are Net Exports?
In this article we will define and discuss how to calculate net exports. But before that, what are exports? Exports Exports are goods and services that are produced in one country and sold to buyers in another. Exports, along with imports, make up international trade.
Exports are incredibly important to modern economies because they offer people and firms many more markets for their goods and also bring money into the country, which increases the exporting nation’s GDP.
With this in mind, we can define net exports as the difference between the amount of products that are exported, or shipped out of the country, and the amount imported, or shipped into the country
Positive Versus Negative Net Exports.
We say a country has a positive net export or a trade surplus if the value of the nation’s imports is lower than the value of its exports. A country with a trade surplus receives more money from a foreign market than it spends.
A negative net export figure is a trade deficit for a given country. It means that the overall value of the country’s imports is greater than the overall value of its exports. This also shows that the country spends more money in a foreign market than it makes.
Factors Affecting Net Exports.
- Currency value. If a country has a lower relative currency value, it may have a higher net export value since the country can manufacture goods there more cheaply and sell for less.
- Trade barriers such as bans or tariffs can prohibit trade or reduce it by making it less appealing as a business choice.
- Natural resources. Nations with larger quantities of valuable natural resources can have greater net exports.
- Agriculture sectors. If a country doesn’t have the land or water to grow its own food and other products, it may import more of those items. If a country can grow its raw materials, this may also increase the country’s exports by encouraging manufacturing.
- Company sizes. This may influence a country’s net exports because larger companies may take advantage of economies of scale to export items at a lower cost than smaller companies, which may prefer to sell products domestically.
- Manufacturing sectors. A country’s ability to manufacture its goods can affect its net exports and imports because it may import more items.
Advantages of Net Import.
- It is one of the important variables used for calculating the Gross domestic product of any country.
- Countries get a positive trade balance. If the exports are greater than the imports, it shows that the country will spend less and receive more money from foreign nations, contributing positively to the GDP.
- The calculation of the net exports of any country helps determine that country’s financial health. If a country’s exports are higher than imports, it generates more money from other countries. This strengthens its financial status.
- Net exports indicate a country’s savings. They help predict a country’s future exchange rates. A low-value currency makes a country’s imports more expensive and exports inexpensive while a high-value currency makes imports inexpensive and exports more expensive.
Disadvantages of Net Exports.
- If a country has a consistent trade deficit or a negative net export value, that will harm its economy and lead to the creation of pressure in the country to devalue its currency, thereby lowering its interest rates.
Formula to Calculate Net Exports.
Imports are the amount of products that are shipped into the country.
Example:
If a country exports $200 billion worth of goods and imports $170 billion worth of goods. Determine the net export value.
Therefore, the net export value is $30 billion.
