What is the relationship between international imports and the balance of payments?

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pohnpei397 | College Teacher | (Level 3) Distinguished Educator

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The relationship between imports and the balance of payments is that a change in the level of imports will change the nature of the balance of payments.   This is because imports are one part of a country’s current account and the current account is one part of the balance of payments.

Every country that trades with other countries has a “current account.”  This is what economists call the sum of all of the country’s imports and exports of both goods and services.  When a country imports goods or services that is reflected in its current account.  If a country’s imports are worth more than its exports, the country has a current account deficit.  Imports make it more likely that the country will have such a deficit.

If the current account changes, then the balance of payments must change in some way because the current account is part of that balance.  However, the balance of payments can never be in deficit.  If there is a deficit in the country’s current account (because of higher imports and/or lower exports), there will have to be a surplus in the country’s capital account, which is the other part of the balance of payments.  This must occur because the balance of payments must always equal zero.

So, imports cannot change the actual value of a country’s balance of payments.  Instead, a change in the level of imports will change the nature of the balance of payments.  It will change the exact values of the current account and the capital account, but the net balance of payment will still be zero.

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