Importance of Exports in the Economy
Exports are a vital component of managing and developing any healthy economy. When exports grow, so too do job opportunities in order to meet international market demands. If the value of exports exceeds the value of imports, account deficits are balanced out and a surplus is left over. A country increase its levels of exports by becoming more cost competitive, improving product quality, reduce tariffs, and invest in and promote private sector development. These steps are often difficult for governments, especially of developing economies.
Balance of Trade
In addition to exports, imports are also an important part of maintaining an economy. Governments must do everything possible to ensure a balance between imports and exports, known as balance of trade. This can be calculated by identifying the difference in value of imports versus exports. When a country exports more than it imports, this is called a trade surplus and is exactly what governments should strive to achieve. If the opposite occurs, imports exceed exports, this situation is called a trade deficit or a trade gap and is precisely what governments should try to avoid. Unfortunately for many countries, their export to import ratio has been declining since the beginning of 2000. Below is a look at those nations.
Countries With Worst Declines in Export to Import Ratios
Gibraltar, a British territory and member of the European Union, has experienced a decline to 50.4% in its export to import ratios relative to those in 2000. In 2014, for example, the value of the country’s exports was only $1.03 billion while its imports reached $13.3 billion creating a trade deficit of $12.2 billion. Three-quarters of this country’s exports consist of refined petroleum and the top importer of this good is Spain (85%). Interestingly, 89% of it imports also consist of refined petroleum of which the majority comes from Belgium-Luxembourg, Spain, and Italy. Why would a country import and export the same product? Many theories attempt to explain this, but one reason could be because of quality. The quality leaving the country may be of higher value. The economy is supported, however, by a thriving online gaming industry, financial services, and tourism.
Honduras, a country located in Central America, has seen a decline in its export to import ratios to 50.8% of those in 2000, slightly better than Gibraltar. In 2014, its export value totaled $8.66 billion and its imports totaled $9.7 billion creating a trade deficit of $1.08 billion. This country mainly exports clothing garments ranging from knit t-shirts to sweaters to undergarments to socks. This explains one of its biggest imports, the cotton yarn it sources from the United States. The US is also its biggest importer because of the Central American Free Trade Agreement (CAFTA). The market here is unfortunately vulnerable to commodity price changes on imports. Additionally, the government has been increasing investments in the maquiladora industry which has created a demand for imported machinery and equipment. These goods are expensive and have contributed to the decline in export to import ratios as well.
Continuing down the list, South Korea is next with a decline in its export to import ratios to 52.7% relative to 2000 levels. Although its ratio has decreased over the last 16 years or so, in 2014, South Korea actually saw a trade surplus of $75 billion. Major exports from this country are machines such as telephones, broadcasting accessories, and integrated circuits. Major imports include crude petroleum, petroleum gas, and refined petroleum. The decline in ratio can be attributed to a rapid growth in imports, just over 10% a year for the last decade. Exports have increased at a slower rate therefore throwing off the balance.
Below is a list of other countries experiencing declines in export to import ratios.