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2/1/2018 Exports: Definition, Examples, Effect on Economy

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What Are Exports? Their Effect on the Economy


Countries Will Do Anything to Increase Exports. Here's Why.
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Countries do whatever they can to increase exports. Photo: The Image Bank/Getty Images

By Kimberly
Kimberly
KimberlyAmadeo
Amadeo
Amadeo
Updated March 07, 2017

Definition: Exports are the goods and services produced in one country and purchased by citizens of another country. It doesn't
matter what the good or service is. It doesn't matter how it is sent. It can be shipped, sent by email, or carried in personal luggage
on a plane. If it is produced domestically and sold to someone from a foreign country, it is an export.

For example, American tourism products and services can be exports.

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Even though they are produced in the United States, they are exports when they’re sold to foreigners who are visiting. If an
overseas friend sends you money to buy a pair of jeans to mail to them, that's also an export. (Source: Department of Commerce.)

How Do Exports Affect the Economy?


Most countries want to increase their exports. Their companies want to sell more. If they've sold all they can to their own country's
population, then they want to sell overseas as well. The more they export, the greater their competitive
competitive
competitiveadvantage
advantage
advantage. That's
advantage because
they gain expertise in producing the goods and services. They also gain knowledge about how to sell to foreign markets.

Governments encourage exports. That's because it increases jobs, brings in higher wages and raises the standard of living
for residents. They become happier and more likely to support their national leaders.

Exports also increase the foreign


foreign
foreignexchange
exchange
exchangereserves
reserves
reserves held
reserves in the nation's central bank.

That's because foreigners pay for exports either in their own currency or the U.S. dollar. A country with large reserves can use it to
manage their own currency's value. They have enough foreign currency to flood the market with their own currency. That lowers

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2/1/2018 Exports: Definition, Examples, Effect on Economy

the cost of their exports in other countries.

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Countries also use currency reserves to manage liquidity. That means they can better control inflation, or too much money chasing
too few goods. To control inflation, they use the foreign currency to purchase their own currency. That lowers the supply, making
the local currency worth more.

What Do Countries Export?


Businesses are able to export goods and services where they have a competitive
competitive
competitiveadvantage
advantage
advantage.
advantage That means they are better than any
other companies at providing that product. 

They also export things that reflect the country's comparative


comparative
comparativeadvantage
advantage
advantage.
advantage Countries have comparative advantages in the
commodities they have a natural ability to produce. For example, Kenya, Jamaica and Colombia have the right climate to grow
coffee. That makes them more likely to export coffee. India's population is its comparative advantage. They have a large population
of people who speak English and are familiar with English laws. That gives them an advantage in skilled yet affordable call center
workers. China has a similar advantage in manufacturing. That's because its population has a lower standard of living. They will
work for lower wagers than people in other countries.

How Countries Support Exports


There are several ways countries try to increase exports.

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First, they will use trade
trade
tradeprotectionism
protectionism
protectionism to
protectionism give their industries an advantage. This usually consists of tariffs
tariffs
tariffs that raise the prices of
imports. They also provide subsidies
subsidies
subsidies on their
subsidies own industries to make prices lower. But, once they start doing this, other countries
will retaliate with the same measures. This will lower trade overall. In fact, this was one of the causes of the Great
Great
GreatDepression.
Depression.
Depression.

Once tariffs and subsidies have lowered trade, countries will negotiate trade
trade
tradeagreements
agreements
agreements.
agreements This allows greater exports by reducing
trade protectionism. The World
World
WorldTrade
Trade
TradeOrganization
Organization
Organization tried
Organization to negotiate an agreement between almost all the nations in the world. It
almost succeeded, until the EU and the United States refused to eliminate their farm subsidies. Now, most countries must rely on
bilateral trade agreements or regional agreements.

Countries will also try to lower the value of their currency. This increases exports by making their prices lower. They do this by
lowering interest rates, printing more currency or buying up foreign currency to make its value higher. Find out which countries
are winning and losing these Currency
Currency
CurrencyWars
Wars
Wars.
Wars  

How the Exports Fit Into the Balance of Payments


What Is
WhatIs
What the
Isthe Balance
theBalance of
Balanceof Payments?
ofPayments?
Payments?

1. Current
Current
CurrentAccount
Account
Account

• What Is a Current
Current
CurrentAccount
Account
AccountDeficit?
Deficit?
Deficit?

• U.S.
U.S.
U.S.Current
Current
CurrentAccount
Account
AccountDeficit
Deficit
Deficit

• Trade
Trade
TradeBalance
Balance
Balance

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