Balance of Trade and Balance of Payments are two related terms but doesn’t mean the same. The main distinguishing factors are given below:
1.
Definition
Balance of
Trade (BOT) refers to the difference between the amounts of export goods and the amount of import goods (visible items).
Balance of
Payment (BOP) is a summary statement in which all the economic transactions
between the resident and the rest of the world are recorded during a particular
period of time (usually a year). Hence BOP is a Flow concept.
2. Components
Balance of Trade
includes only visible items.
Balance of Payments
includes visible items, invisible items, unilateral transfers and capital
transfers.
3. Nature of
capital transactions
Balance of
Trade does not record capital transactions.
Balance of Payments records all capital transactions.
4. Scope
Balance of Trade
is a narrow concept. In the sense that it is a part of the Balance of Payment
account.
Balance of Payments
is a wider concept. In this sense, it includes Balance of Trade.
5.
Adjustment
Unfavourable Balance
of Trade can be met by favourable Balance of Payments.
Unfavourable Balance
of Payments cannot be met by favourable Balance of Trade.
6.
Different types of BOT:-
- Surplus/Favorable BOT: when a country exports more goods than imports.
- Deficit/Unfavorable BOT: when a country imports more goods than exports.
- Balanced BOP: whenever the receipts of foreign exchange equal to the payments of foreign exchange.
- Surplus BOP: whenever the receipts of foreign exchange exceed the payments of foreign exchange.
- Deficit BOP: whenever the receipts of foreign exchange are less than the payments of foreign exchange
Insightful
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