Net Exports Formula

Introduction

The net exports formula is a key indicator of the economic health of a nation. As it includes both the total exports and total imports of a nation, it shows whether the output is healthy or not. It provides a broader idea of the volume of exports in comparison to the volume of imports of a nation. Therefore, knowing the net exports formula can be helpful in deciding whether a certain industry needs support or not.

Net export is an important indicator of a country’s financial health. It may provide clues to business industries in deciding whether to import from or export to the country or not. Also, net export is an important factor in calculating the GDP of a country which shows how a country is performing financially and how big the size of the economy of the country is.

What is Net Export?

Net export refers to the total sum of imports and exports of a country to all other countries.

• If a country exports more than what it imports, then the value of net exports is positive. It is called trade surplus which shows that a country has a robust economy. It is so because the country is exporting goods of higher monetary value than what it’s importing. This helps the nation become more self-reliant because it can meet more of its material needs.

• When the total monetary value of imports exceeds the total value of exports, then the value of net exports is negative. This situation is known as a trade deficit which is an indicator of the ill health of an economy. This is so because in this case, the country makes more expenditure in international markets than what it earns from the markets.

Almost all the countries export all types of items and international trade is not just limited to manufactured goods. Most countries in the modern day are net importers in certain industries while they are net exporters in some other industries.

Some components that make up the export and import totals include the following −

• Financial services

• Tourism rates

• Transportation methods

• Freight transportation systems

• Communication models

• Merchandise or goods.

Net Exports Formula

Net exports are calculated using the following formula −

$\mathrm{Net\:exports\:=\:Total\:exported\:goods\:and\:services\:-\:Total\:imported\:goods\:and\:services}$

For example, India’s net imports in February 2022 were USD 69.35 Billion while the net exports were 57.03 Billion. So, there was a trade deficit of USD 12.32 Billion (Source: Ministry of Commerce and Industry, Government of India).

Factors Influencing Net Exports

Net exports of a country are influenced by the following factors −

Value of Currency

The price of manufactured goods is determined by the local currency of a nation. So, if the value of the currency of a nation is lower than another country, then the former may produce goods at a lesser value and sell them at a cheaper rate to other countries. So, the net export value of the former would be more than the latter.

Natural Resources

A country with more natural resources can have a better net export value because it can sell more of its raw materials to other countries. Also, other countries may purchase any other product that can be made using the resources. So, the amount of natural resources is proportional to the net export value of a country.

Trade Barriers

Trade barriers, such as tariffs and bans affect trade in a negative manner. If bans and tariffs are applied the country may become less appealing to traders and international trade with the country may suffer a blow.

Agriculture Sectors

If a country does not have land and water resources, it will have to import more agricultural items which will increase its net imports. On the other hand, when a country can grow more of its agricultural items, it may help the net exports grow. Therefore, having a storing agricultural sector helps nations have a more resilient net export figure.

Manufacturing Sector

A strong manufacturing sector helps a country to grow its independence. If there is a healthy manufacturing sector in a country, it may boost its exports because manufacturing adds value to the raw materials inventory. If the manufacturing sector of a country is weak, then it may have to import more of its commodities that need to go through manufacturing to get a final shape.

Company size

The sizes of companies in a country may be a factor in increasing net exports because large companies may rely on economies of scale to produce items at a lower rate than the smaller companies that prefer to sell their items domestically.

Net Exports as GDP percentage

Net exports play an important role in calculating the percentage of GDP which is different from GDP per capita. GDP per capita refers to the economic output per individual which may be influenced by the large population of a country with a huge population. A large country may have large import and export Dollar values in comparison to a smaller country but the overall health of the country may be similar.

The formula for calculating Net exports as GDP percentage is

$\mathrm{Net\:exports\:as\:GDP\:percentage\:=\:\lgroup\:\frac{Net\:exports\:in\:dollar\:amount}{GDP}\rgroup\:\times\:100}$

What is Net Import?

Net import occurs when a country’s imports exceed its exports. When the net export value is negative, it is usually a net important with the opposite sign. A positive net import value suggests that the country imports more than what it exports.

In the example provided above about India’s net exports, the value obtained is actually net import because the total export value, in that case, is lower than the total import value.

$\mathrm{Net\:imports\:=\:Total\:imported\:goods\:and\:services\:-\:Total\:exported\:goods\:and\:services}$

Note − The notable point, therefore, is that a country can either make net exports or net imports because it depends on the total values of imports and exports. The two terms are therefore related to each other.

Conclusion

The net exports formula is one of the most important formulas in economics because it shows the total exports over total imports. In the case the value of total export is higher, we can conclude that the country’s economy is in good health. Therefore, having an idea of net export is beneficial for all economists and businesses.

FAQs

Qns 1. What is meant by net exports? Discuss briefly.

Ans. Net export refers to the total sum of imports and exports of a country to all other countries. If a country exports more than what it imports, then the value of net exports is positive. It is called trade surplus which shows that a country has a robust economy.

Qns 2. What is the net export formula?

Ans. The formula for calculating net exports is

$\mathrm{Net\:imports\:=\:Total\:exported\:goods\:and\:services\:-\:Total\:imported\:goods\:and\:services}$

Qns 3. What is the opposite of net export?

Ans. The opposite of net export is net import. Net import shows the excess import over total exports of an economy.