Import means bringing goods produced abroad into domestic. It includes goods and services. Goods can be consumer goods, raw materials, or capital goods.
Imports are the opposite of exports, which represent foreign buyers’ demand for domestic goods and services.
When the value of imports is higher than the value of exports, a country experiences a trade deficit (net imports). Conversely, when the value of exports exceeds the value of imports, it is a trade surplus (net exports).
Factors affecting import
Various reasons explain why a country buys goods produced abroad, including:
- Supplies are not available in the domestic market, such as some raw materials and capital goods
- Domestic industries provide products or services, but not as efficiently or as cheaply as imported goods
In addition to availability and price factors, other factors affecting imports are domestic income (reflected in real GDP growth), exchange rates, and government policies (such as tariffs and quotas).
Implications
Imports reduce economic growth. In calculating the GDP demand approach, imports represent the demand for products produced by foreign countries. The increase stimulates production abroad rather than by the domestic production. Therefore, it has a negative correlation with GDP.
Because it reduces domestic demand, some critics argue that imports disincentivize business activities, entrepreneurship development, and job creation in the domestic economy.
Imports lead to a depreciation of the domestic currency. To pay for imported goods, domestic buyers demand partner countries’ currencies, hence pushing up their value.
Proponents argue that imports are needed because they improve the quality of life. Imports give consumers more choices and cheaper or higher quality goods.
However, when foreign goods become more expensive, for example, due to depreciation, imports bring trading partners’ inflation into the domestic economy (referred to as imported inflation).
