Balance of Trade (BOT)
Balance of trade is the summary of total volume of exports and imports of visible goods and services of a country with the rest of the countries in the world. Therefore, it shows the trade of visible goods with the rest of the countries in the world during a year.
Visible goods are those goods which are duly recorded at custom barriers of the country. Since it studies only about the visible trade, it is taken as a partial study of the total economic transactions in the international trade. That is why it cannot show the whole economic performance of a country.
According to F. Benham, “The trade balance of a country is the relation over a period between the values of her export and the value of her import.”
There are three possibilities in Balance of Trades. They are as follows:
- Surplus in BOT
- Deficit in BOT
- Balanced in BOT .
- If the value of export exceeds the value of import, it is known as favorable or surplus balance of trade, which is a healthy indicator of economic development.
- If the value of export is less than the value of import, it is called deficit or unfavourable or adverse balance of trade.
- Similarly, if the value of export is equal to value of import, it is called balanced balance of trade.