The net exports formula helps in calculating the net exports of the country which helps in analyzing the business health of the country and serves as an important indicator for various purposes. It helps in analyzing the total income incurred or earned through trade with other countries. It helps in the calculation of the GDP of the country as well in terms of total income earned or spent on goods and services with respect to international trade. Here, we will cover what are net exports, the net exports formula, and examples that will help you to understand this formula.
What are Exports and Imports?
These are two important terms which are related to the international business in which when a trade happens between two countries, these terms come into the picture. Exports refer to the production of goods and services in one particular country which is purchased by the residents of some other country whereas this purchase of goods and services from another country will be called as Import. The type of goods and services and how they have been shipped, all these things do not matter. It can be shipped in any way such as by ship or plane or digitally or personally etc. In simple words we also can say that the goods are services which are produced in one country but purchased by another country is called export and on the other hand, if something we purchase from another country, that will simply be called import.
These two are very important components whenever we talk about international trade. Two countries usually do trade with each other in the form of goods and services. Suppose two countries are trading such as A and B. When the exports of A are greater than its imports with respect to B, then it will be called trade surplus whereas if imports of A are greater than exports, in this case, it will be called a trade deficit.
What are Net Exports?
This refers to the total amount which denotes the total exports of a country when they exceed the total imports. It serves as an important indicator in GDP calculation as well. When the total amount of exports of a country surpasses the total amount of imports, the amount we get will be called net exports. This is only happening because of international trade and it leads to two aspects ie. Trade surplus and trade deficit. When it is in the favour of the country, it results in positive value otherwise negative value when exports are less than the total value of imports. The maximum exports show that the maximum income earned by the country whereas for the country it shows the total income incurred. The country with a trade surplus means it is receiving more money whereas the country with a trade deficit means it is spending more money than earning.
How to Calculate Net Exports?
The net exports of the country can be calculated with the help of the following net exports formula:
Net exports = Value of exports – Value of imports
Value of exports = Total money or income earned by a country by selling goods and services to other countries.
Value of imports = Total money incurred by a country on purchasing goods and services from other countries
Net Exports Formula = Exports of Goods + Exports of Services - Imports of Goods - Imports of Services
We have covered what are net exports and their formula. Let's go through the example to learn more properly:
Example: In the financial year 2020-21, India sold organic products of ＄10 million, handicrafts of ＄8 million, textile of ＄15 million whereas purchased ＄15 million worth coking coal and almonds of ＄7.5 million. Calculate the net exports.
Solution: With respect to India, ＄
organic products = ＄10 million
handicrafts = ＄8 million
textile = ＄15 million
Total Exports = ＄ ( 10 + 8 + 15 ) million = ＄33 million
Coking Coal = ＄15 million
Almonds = ＄7.5 million
Total Imports = ＄22.5 million
Using the Formula;
Net Exports = Total Exports - Total Imports
= ＄33 million - ＄22.5 million
= ＄10.5 million
Therefore, the value of the net exports of India is ＄10.5 million and according to this India is having a trade surplus here whereas the US has a trade deficit as per the example.
To wrap up the net exports discussion, we can say that it is related to buying and selling of goods and services in the international market where because of this activity one country will have a trade surplus and other will have a trade deficit. In this article, we covered net exports meaning, how do you calculate net exports with a formula and example. It helps in analyzing the income earned from international trade. It also helps in attracting business opportunities in a country that has a trade surplus.