Exports play a crucial role in the economic development of a country.
Exports have the potential to create employment in the economy. Exports comprise 8.5 % of the total US GDP. Two-thirds of this total consists of exports in goods. Most exports from the United States are in the form of capital goods. Apart from that, industrial supplies and equipment have a major share in exports. Agricultural products have a major advantage in trade because of government subsidies. One-third of the total exports come from services. These industries have the potential to create employment.
Export is a component of GDP. An increase in exports causes economic growth through an increase in GDP. As GDP increases, consumption and demand also increase, causing domestic production to increase. A decrease in exports harms GDP and economic growth.
The balance of payments is affected by the trade balance. One of the components of the trade balance is exports. Exports bring much needed foreign exchange. Foreign exchange reserves are used to purchase goods and services from abroad. The greater a country’s foreign exchange reserves, the easier it is for that country to balance its exchange rate.
Ways to Increase Exports
A nation can adopt several methods to increase its exports. These methods are related to improving price competitiveness, product quality, and reducing trade barriers. Major ways to increase exports are as follows:
Devaluation of currency: A lower exchange rate will increase price competitiveness in the short term. However, it will contribute to inflation in the economy. Also, there will be fewer incentives for exporters to improve their productivity.
Innovation: The quality of exports can be improved through innovation in production. The government can provide an incentive for innovation through better intellectual property rights.
Reduction in trade barriers: When a country imposes trade barriers on imports of goods and services, other countries retaliate in return. This reduces exports of the home country. One way of increasing exports is to remove tariff and non-tariff barriers from imports; however, this is likely to hurt some domestic producers through increased competition.
Trade agreements: The government can increase exports through multilateral and bilateral trade agreements with other countries. This will help in reducing friction in trade, and increase the volume of exports.
Supply-side policies: Supply-side policies, such as improvement of education, training, and reduced government regulation, can help in increasing production and exports.
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