Export Meaning
Export is the economic activity of selling goods and services produced in one Country to another. The movement of locally manufactured products across international borders plays a significant role in international trade and globalization. Therefore, it is an important metric and contributes immensely to a country’s Gross Domestic Product (GDP).
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For eg:
Source: Export (wallstreetmojo.com)
As opposed to Exports, imports involve purchasing goods and services from another country for domestic utilization. Exports are essential for any country, as the transfer of local natural resources is extremely important. For developing economies, it is even more crucial than imports, as it leads to growth.
Table of contents
- Export Meaning
- Export Explained
- Advantages and Disadvantages
- Examples
- Export vs. Import
- Frequently Asked Questions (FAQs)
- Recommended Articles
Key Takeaways
- Exports refer to the movement of products manufactured domestically across international borders. It involves selling goods and services produced in one country to another.
- Its value should always be greater than imports to generate a positive trade balance for the country.
- However, exports are often associated with exploiting resources and competition in the home market, leading to a survival disadvantage for domestic manufacturers and sellers in the importing country.
- Governments actively support exporters and implement many policies in their favor. They also receive many subsidies and tax returns. In addition, credit agencies cushion the credit risk they face.
Export Explained
Export is a very popular and common economic activity. Various countries have abundant natural resources. For example, the Middle-Eastern countries are rich in oil; Brazil is rich in cotton; China with the largest textile exports, etc. But not all countries are conferred with every required resource.
Thus arises the need to transfer as many commodities as possible so everyone can enjoy every resource. This movement of required commodities across borders is not anything new. For example, there is evidence of maritime trade in India as old as 1800 BCE. The ancient Silk Road of China is another example.
However, import-export business in the modern era can be attributed to the British and colonization. Though what exactly occurred was massive exploitation of resources, it initiated the process of selling and buying across international borders. It became a major source of income for many resource-rich countries.
Nevertheless, in the present day, the availability of resources and the economy’s ability to add value or utilize it also counts. Other facilitators include industrialization, liberalization or opening up of economies, technology, containerization, digitalization, globalization, etc.
Exporting today is increasingly becoming a viable option for many, thanks to the trade-friendly policies of many countries. Governments openly encourage many manufacturers to expand their markets. The trade agreements between countries have added to its ease. Also, the conventional risks that once held back many people (referred to as perils of the sea or air) are resolved by insurance. Traders are even insured against credit risks.
Banks and other lending institutions are becoming more proactive in international trade. Their participation can be seen in expanding the credit options, such as letters of credit, documentary credit, buyer’s credit, etc.
Examples
Let’s look at a few examples to gain a better idea of the topic:
Example #1
Country A, a developing nation, is an exporter of diamonds. Diamonds bring in annual revenue of $1 trillion and $110 billion from other items. However, the country heavily relies on the import of other commodities like textiles, food products, etc. The total import value approximates $1.3 trillion. The balance of trade value = $1.11 – $1.3 = ($190 billion).
This value should be positive for a developing country, but the negative value is not favorable for Country A.
Example #2
Consider this recent example of the Black Sea grain deal. The initiative was implemented amid the Russia-Ukraine war in July 2022. Its main aim is to handle global food shortages by allowing the smooth transportation of grains produced in Ukraine via the Black Sea. The agreement mainly involves Russia, Ukraine, Turkey, and the United Nations.
Previously, the Russia-Ukraine war had halted most of Ukraine’s global trade activities. One such case is the inability of the latter to sell its domestic production. The agreement was set to expire on November 19, 2022. However, it has been extended for 120 days since November 17. It is to be noted that before the war, Ukraine was a major seller of grains.
Advantages And Disadvantages
Trading across international borders involves certain merits and demerits. Here are they:
#1 – Advantages
- Exports form an important component of gross domestic product (GDP).
GDP = Consumption + Government spending + Investments + Net exports
Where, Net exports, or balance of trade = Exports – Imports
Thus, the value of imports should always be lower, and exports should be higher if the GDP should increase.
- It ensures the planned and optimal utilization of all natural and human resources. This also increases employment, contributing to national income and living standards.
- It also draws capital and investments into the country. Domestic infrastructure (industries, ports, etc.) is a prerequisite if a country can sell commodities globally. Therefore, export-oriented economies are good investments.
- It stimulates domestic economic activity and leads to growth.
- Governments promote traders with tax returns, subsidies, etc.
#2 – Disadvantages
- There are arguments that cross-border selling leads to over-utilization or exploitation of resources.
- It leads to competition in the importing country, and some local firms will not be able to survive.
- There are many costs involved, making it an expensive affair.
- Further, the physical absence of the manufacturer in the importing country leads to their lack of control and might tarnish their reputation.
Export vs Import
Import-export business is a strong pillar of economic stability in any country. Here are the differences between the two:
| Export | Import |
| Movement of commodities out of a country. | Movement of commodities into a country. |
| Adds to national income. | Forms a part of national expenditure. |
| Governments encourage exports with subsidies and duty returns. | Governments discourage imports with duties, taxes, etc. |
| Promotes self-reliance and the sale of surplus. | Indicates dependence on other countries. |
| The net value should be greater than the imports. | Lesser the value of imports, the better. |
Frequently Asked Questions (FAQs)
Saudi Arabia is the largest oil exporter globally. In August 2022, the country sold 11.051 million barrels. Russia holds the second position.
International trade is important in ensuring connectivity and cordial relations between nations. Exports, specifically, contribute to a country’s GDP and economic growth. It ensures capital flow into the country and maximum resource utilization. It also boosts employment and attracts investments.
Russia’s major buyer of oil is China. According to Statista, China bought $35 billion worth of oil from Russia in 2021. Other major buyers include the Netherlands, Germany, Belarus, and South Korea, among the top five.
Yes. It forms one of the four major components of GDP. The import value is deducted from it to account for the net balance since any cash outflow is reflected in the final value.
Recommended Articles
This has been a guide to Export and its meaning. Here, we compare it with import and explain its examples, advantages, and disadvantages. You can learn more about finance from the following articles –
- Export License
- Export Credit Agency
- Net Exports
This post first appeared on Free Investment Banking Tutorials |WallStreetMojo, please read the originial post: here
