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Impact of import and export on the economy

 Today, the consumer has seemed accustomed to seeing diverse products from around the world in commercial markets. These imported products provide multiple and diverse consumer options. Thanks to the cost licences of producing these imported products in some places compared to local products, the consumer can save money and reduce its expenses.

When a country imports a lot of products in a high proportion compared to its exports, there is a distortion in the trade balance and the local currency loses value.

Loss of local currency value adversely affects citizens' daily lives, as currency value is one of the most important factors determining the effectiveness of state economic performance and GDP. Balancing import and export is essential to the country's economy.

Import and export directly affect GDP, transfer value, inflation and interest ratio.

Impact of import and export on the economy

Impact on GDP:

GDP is the optimal means of measuring the nation's overall economic activity. Import and export are important elements of the method used to measure GDP, The measurement process is done as follows:

GDP= C + I + G + (X – M)

C = What is spent by the consumer to buy products and services.

I = Investment expenditure on business capital and products.

G = Government spending on public products and services.

X = Export.

M = Import.

In this equation as a result of the subtraction of imports of exports gives net imports. When the value of exports exceeds the value of imports, we get a positive number which means that the country has a trade surplus. Where import is more than export, the net value of exports becomes negative, meaning that the State is in trade deficit.

The trade surplus contributes to the nation's economic growth. When a State's export increases, the productivity of plants and factories increases, there will be more jobs to operate the factories.

When a company exports many products, the flow of funds in the country rises, stimulating consumer spending and supporting economic growth.

The impact of import and export on the individual:

When the state imports products money flows out of the country. Domestic importing companies pay money to their distributors outside the State. The high level of imports indicates strong domestic demand and a growing economy. If these imports are production tools as machinery for factory work or industrial equipment, they are a preference for the state as they will improve economic output in the long term.

In a successful economic system, both imports and exports are in constant growth, in which case the state economy is considered strong with sustainable trade at the level of surplus or trade deficit. If the proportion of exports increases and the proportion of imports falls sharply, this could mean that other countries' economies are better than the local economy. Conversely, if exports fall and imports increase, this could mean that the domestic economy is progressing better than other countries.

For example, the trade deficit in the United States of America worsens when economic growth is at its best, while imports account for a greater proportion of exports.

Despite everything, the recurring trade deficit has not prevented the United States of America from continuing as one of the world's most powerful productive economies.

Generally, increased imports and trade deficits adversely affect one of the major economic variables, the state's exchange rates, as the level of the local currency is assessed by comparison with other currencies.

Influence on exchange rates:

 The relationship between import and export of the State and the exchange rate is a very complicated thing because there is an ongoing cycle of reaction between international trade and the way a country's currency is valued.

There is an exchange rate effect in the trade surplus or trade deficit that affects the exchange rate, and so on.

In any case, the weakness of the local currency generally stimulates exports and makes imports more expensive. On the other hand, a strong domestic currency makes exports difficult and imports cheaper.

For example, if we take an electronic component at $10 in the United States of America where it will be exported to India. Assuming that the exchange rate is Rs. 50 per dollar - neglecting the cost of transportation and import fees - an e-boat of $10 will be priced on the Indian importer Rs. 500.

If the dollar to rupee increases to Rs 55 per dollar and if the US seller does not raise the price of the electronic component, the new price on the Indian importer will become Rs 550 (10 * 55). This leads to the Indian importer searching for a cheaper price elsewhere, because increasing the value of the dollar has made the export process difficult for the American trader in the Indian market.

At the same time, assuming once again that an exchange rate of Rs. 50 to USD, and that there is a clothing exporter in India whose main market is the United States, the shirt the exporter sells for USD 10 in the US market earns them Rs. 500 upon receipt of export proceeds (neglecting shipping and other costs),

If the dollar as in the previous example increases to Rs. 55 per dollar, the exporter can now sell the same T-shirt at $9,09 to earn the same amount (Rs. 500). This means that increasing the value of the dollar against the rupee was in the interest of the Indian exporter, increasing its ability to compete in the US market and offering cheaper prices.

As a result, the dollar rose 10% against the rupee, weakening the competitive strength of the American electronic component in the Indian market, but lowering the price of imported Indian shirts in the U.S. market.

The 10% decline in the value of the rupee has improved the competitiveness of Indian exports of clothing but has made imports of electronic components more expensive for Indian consumers.

When this scenario is replicated across millions of transactions, the exchange rate may have a significant impact on the country's imports and exports.



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