Measuring International Trade Balance of Trade


The balance of trade measures the difference between the value of a country’s visible exports and its visible imports. The balance of trade only includes physical goods; it does not include services.


Balance of Trade formula = Value of Visible Exports –Value of Visible Imports


If visible exports are greater than visible imports, the country has a trade surplus. If visible exports are less than visible imports, the country has a trade deficit.


Worked example 1 Ireland's visible exports = €90bn Ireland's visible imports = €60bn Balance of Trade = €90bn − €60bn Balance of Trade = €30bn surplus


Balance of Payments


The balance of payments includes both visible trade (physical goods) and invisible trade (services) between Ireland and other countries.


Balance of Payments formula =


(Visible Exports + Invisible Exports) –(Visible Imports + Invisible Imports) = Total Exports–Total Imports


Worked example Visible exports = €90bn Invisible exports = €40bn Total exports = €90bn + €40bn = €130bn Visible imports = €60bn Invisible imports = €35bn Total imports = €60bn + €35bn = €95bn Balance of Payments = €130bn − €95bn


Balance of Payments = €35bn surplus


Worked example Visible exports = €50bn Invisible exports = €20bn Total exports = €50bn + €20bn = €70bn Visible imports = €65bn Invisible imports = €30bn Total imports = €65bn + €30bn = €95bn


Balance of Payments = €70bn − €95bn Balance of Payments = (€25bn) deficit


TOP TIP


A surplus means more money is coming into the country than going out from international trade. A deficit means more money is leaving than coming in. Always show your workings and state whether the answer is a surplus or deficit, and include the Euro (€) sign and unit of measurement (e.g. Billions).


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Worked example 2 Ireland's visible exports = €60bn Ireland's visible imports = €80bn Balance of Trade = €60bn − €80bn Balance of Trade = (€20bn) deficit


STRAND 3 CHAPTER 33: Globalisation and international trade


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