The Importance of Exports in an Economy Export growth is important because of its effect on internal trade and economic stability.

Even more, the rate of economic growth and the distribution of income and wealth in a country are closely related to export growth. Growth of an economy is directly related to exports. If exports increase at a faster pace as compared to imports, nothing can stop an economy from being a developed one. On the other hand, the instability in exports can adversely affects the process of economic development. Lower exports mean low foreign exchange and lower foreign exchange in turn means a small purchasing capacity of a nation in the international market. Fluctuations in export earnings introduce uncertainties in an economy. These uncertainties influence economic behavior by adversely affecting the level and efficiency of investment and in turn have a negative effect on growth. In addition to the above factors, export growth is also important because of its effect on internal trade and economic stability. Even more, the rate of economic growth and the distribution of income and wealth in a country are closely related to export growth. The concept of trade stability or instability may be based either on a countrys aggregate trade in comparison with the cost of the world or on a binary country pair comparison. Such binary pairs may be large depending upon the number of trading allies. Export instabilities have been claimed to affect economic growth both positively and negatively. Fluctuation in exports earnings introduces uncertainties in the economy. The other side of the picture is that a greater amount of uncertainty on export proceeds also brings about risk aversion. People tend to invest more in their own country and the economy starts improving gradually. But this is not much observed these days. Export fluctuations, on an average, act as a hindrance to the stability and growth of the under developed countries. A high degree of export instability may be expected to deter investment on a number of grounds. It is also expected to raise borrowing costs, because export fluctuations tend to cause balance of payment complexities. This ultimately leads to low confidence of people in the process of maintenance of the exchange rate. Export instability stimulates inflation. The simple rule of the thumb is that as inflation rises in a country, the products and services tend to be costlier, with minor exceptions, of course.

Foreign trade has become more important to our economy in recent years. Exports and imports of goods and services have grown rapidly. A growing trade volume benefits our standard of living in several ways Increase the exports would have many more advantages that its costs. - Improve terms of trade - Improve the country's balance of payment - Help the country to pay its national debt - Improve the unemployment rate - Utilize each country's comparative advantage - Business operation stability - Product improvement - Market diversification - Additional source of revenues Increasing the Exports of a Country helps benefit its Balance of payments, this means that the Country has extra Foreign currency it means also that there is less unemployment. This is caused by the the exporting companies employing more workers to keep up to the increase in demand for their goods. It also makes an increase in the power of the Home currency, as the demand for a Countries goods and services increases, the Currency markets start to mark up the currency in relation to its competitors. This has the effect of making Foreign goods cheaper so that then makes imports cheaper, but also flattens the chance of inflation. A home producer cannot raise prices because a Foreign producer then becomes cheaper, which they may already be due to the Currency rising in value. I note the other person said it reduces National Debt, it can but only if the Home Country Economics Minister pays off the debt using taxes raised by the Exports. National debt is not caused by running a Balance of payments deficit. It is when the Country borrows money to help finance its taxes. This is 2 different things. An increase in Exports can mean a Country can buy overseas investments, like Ford investing in Britain in the 20s and 30s, GM in Australia, and Britain in the US during the 80s. And the Japanese in all of them since the 70s. Importance of exports

Employment. Growth in exports can create employment. For example, the growth in car exports have created many job in car industries, such as BMW factory in Oxford, and Nissan in Sunderland. Traditionally export jobs have been in manufacturing industries an important source of full-time employment, especially in industrial regions. In recent years, exports have become more diversified with a greater reliance on service sector based exports.

Economic growth. Exports are a component of aggregate demand (AD). Rising exports will help increase AD and cause higher economic growth. Growth in exports can also have a knock on effect to related service industries. For example, the success of car exports in Sunderland will help the local economy with local clubs and shops benefiting from increased spending. Similarly a fall in exports, during a global economic downturn can have a big negative impact on UK economy. Current account deficit. The strength of exports has a large role in determining the current account deficit. In the past few decades, the UK has had a persistent current account deficit, which many attribute to the UKs relative poor export performance.

What determines the level of exports?

Competitiveness. The relative competitiveness of exports will play an important role in determining the level of exports. If UK prices relative to other countries, the UK will lose out. Competitiveness is determined by factors such as unit labour costs, inflation, productivity, infrastructure and price of raw materials. Quality and value added of exports. For some industries like medicines, demand is price inelastic. Therefore, a change in price has less effect on demand. The key issue is the importance, quality and value added of the product. Exchange rate. A depreciation in the exchange rate will make UK exports more competitive, but may contribute to cost-push inflation and will cause more expensive imports. Long run productivity

How to increase the level of exports

Pursue a weaker pound (if in fixed exchange rate devaluation). A lower value of the pound makes exports cheaper, but this boost to competitiveness may prove temporary because of the increase in inflation. Also, if you rely on depreciation, exporters may have less incentive to cut costs and improve long-term productivity. Supply side policies to improve competitiveness. Supply side policies could include both interventionist supply side policies (such as education and training) and market oriented supply side policies (e.g. reducing power of trades unions, reducing government regulation). This can enable increased productivity. Private sector innovation. There is only so much the government can do to promote private sector productivity. Competitiveness depends on new technology and management techniques as much as any government policies. Reduce tariff barriers. Lower tariff barriers can help increase trade. However, if you reduce general tariff barriers, some domestic industries may lose out because they can no longer compete. However, the theory of comparative advantage states overall economic welfare will increase there will just be a shift within the economy

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