Transcript Chapter 1: Introduction

An Introduction to
International Economics
Chapter 10: Balance of Payments
Dominick Salvatore
John Wiley & Sons, Inc.
Dale R. DeBoer
University of Colorado, Colorado Springs
10 - 1
Balance of payments
• The balance of payments provides a summary
statement of international transactions for a
nation for a specified period of time.
• The balance of payments converts
international transactions into dollar terms at
the going rate of currency exchange.
Dale R. DeBoer
University of Colorado, Colorado Springs
10 - 2
Key categories
• Credit transactions
– Transactions that involve receipt of payments
from foreign sources.
– Major types
• Exports of goods and services
• Capital inflows
– Increases in foreign assets in a nation
– Decreases in a nation’s assets abroad
Dale R. DeBoer
University of Colorado, Colorado Springs
10 - 3
Key categories
• Credit transactions
• Debit transactions
– Transactions that involve payment to foreign
sources.
– Major types
• Imports of goods and services
• Capital outflows
– Increases in a nation’s assets abroad
– Decreases in foreign assets in a nation
Dale R. DeBoer
University of Colorado, Colorado Springs
10 - 4
Double entry bookkeeping
• In balance of payment
accounting, each
international
transaction is recorded
twice – once as a credit,
once as a debit.
• Examples
– $500 in exports to be
paid in 3 months time
Dale R. DeBoer
University of Colorado, Colorado Springs
Credit
(+)
Goods
export
Capital
outflow
Debit
(-)
$500
$500
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Double entry bookkeeping
• Examples
– $500 in exports to be paid
in 3 months time
– $200 spent by a US
tourist in London on
services
Credit
(+)
Service
import
Capital
outflow
Dale R. DeBoer
University of Colorado, Colorado Springs
Debit
(-)
$200
$200
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Double entry bookkeeping
• Examples
– $500 in exports to be paid
in 3 months time
– $200 spent by a US tourist
in London on services
– $100 in US government
foreign aid given to the
government of a
developing nation
Dale R. DeBoer
University of Colorado, Colorado Springs
Credit
(+)
Unitlateral
transfer
Capital
outflow
Debit
(-)
$100
$100
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Double entry bookkeeping
• Examples
– $500 in exports to be paid
in 3 months time
– $200 spent by a US tourist
in London on services
– $100 in US government
foreign aid given to the
government of a
developing nation
– $400 in foreign stocks
paid for by increasing
foreign bank balances in
the U.S.
Dale R. DeBoer
University of Colorado, Colorado Springs
Credit
(+)
Capital
outflow
(stock)
Capital
inflow
(bank
balance)
Debit
(-)
$400
$400
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The balance of payments for the U.S.
• 2003 data from the
Bureau of Economic
Analysis in billions of
U.S. dollars
– WWW link
Exports of goods and services and income receipts
Exports of goods and services
1,020.5
Goods, balance of payments basis
713.1
Services
307.4
Transfers under U.S. military agency sales
contracts
12.5
Travel
64.5
Passenger fares
15.7
Other transportation
31.8
Royalties and license fees
48.2
Other private services
133.8
U.S. Government miscellaneous services
0.8
Income receipts
294.4
Income receipts on U.S.-owned assets abroad
291.4
Direct investment receipts
187.5
Other private receipts
Dale R. DeBoer
University of Colorado, Colorado Springs
1,314.9
99.1
U.S. Government receipts
4.7
Compensation of employees
3.0
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The balance of payments for the U.S.
Exports of goods and services and income receipts
Exports of goods and services
1,314.9
1,020.5
Goods, balance of payments basis
713.1
Services
307.4
Transfers under U.S. military agency sales
contracts
12.5
Travel
64.5
Passenger fares
15.7
Other transportation
31.8
Royalties and license fees
48.2
Other private services
U.S. Government miscellaneous services
Income receipts
Income receipts on U.S.-owned assets abroad
Direct investment receipts
Other private receipts
133.8
0.8
294.4
291.4
187.5
– These factors show the
source of total service
exports.
• Income receipts are
primarily income
earned on past
investment activities
abroad.
99.1
U.S. Government receipts
4.7
Compensation of employees
3.0
Dale R. DeBoer
University of Colorado, Colorado Springs
• Service exports
10 - 10
The balance of payments for the U.S.
Imports of goods and services and income
payments
Imports of goods and services
Goods, balance of payments basis
Services
-1,778.1
-1,260.7
-256.3
-25.1
Travel
-56.6
Passenger fares
-21.0
Other transportation
-44.8
Royalties and license fees
-20.0
Other private services
-85.8
Income payments
Income payments on foreign-owned assets in
the United States
Direct investment payments
Other private payments
U.S. Government payments
Compensation of employees
Dale R. DeBoer
University of Colorado, Colorado Springs
-67.4
-1,517.0
Direct defense expenditures
U.S. Government miscellaneous services
Unilateral current transfers, net
U.S. Government grants
-21.9
U.S. Government pensions and other transfers
-5.3
Private remittances and other transfers
-40.2
-3.0
-261.1
-252.6
-68.7
-111.9
-72.0
-8.5
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Balance of payments for the U.S.
• Summary accounts
– Merchandise trade balance = - $548 billion
• Goods exports – goods imports
– Trade balance = - $497 billion
• Exports of goods and services – imports of goods and
services
– Income balance = $33 billion
– Current account = -$531 billion
• Trade balance + income balance + unilateral transfers
Dale R. DeBoer
University of Colorado, Colorado Springs
10 - 12
The balance of payments for the U.S.
U.S.-owned assets abroad, net
-283.4
U.S. official reserve assets, net
Gold
1.5
…
Special drawing rights
0.6
Reserve position in the International Monetary Fund
1.5
Foreign currencies
U.S. Government assets, other than official reserve
assets, net
U.S. credits and other long-term assets
Repayments on U.S. credits and other long-term
assets
U.S. foreign currency holdings and U.S. short-term
assets, net
-0.6
• Direct investment
0.5
-7.3
8.0
-0.2
U.S. private assets, net
-285.5
Direct investment
-173.8
Foreign securities
-72.3
U.S. claims on unaffiliated foreigners reported by
U.S. non-banking concerns
-28.9
U.S. claims reported by U.S. banks, not included
elsewhere
-10.4
Dale R. DeBoer
University of Colorado, Colorado Springs
• Main portfolio
investment items
10 - 13
The balance of payments for the U.S.
Foreign-owned assets in the United States, net
829.2
Foreign official assets in the United States, net
248.6
U.S. Government securities
U.S. Treasury securities
Other
194.6
169.7
24.9
Other U.S. Government liabilities
-0.6
U.S. liabilities reported by U.S. banks, not included
elsewhere
49.4
Other foreign official assets
Other foreign assets in the United States, net
Direct investment
• Direct investment
5.1
580.6
39.9
U.S. Treasury securities
113.4
U.S. securities other than U.S. Treasury securities
251.0
U.S. currency
16.6
U.S. liabilities to unaffiliated foreigners reported by
U.S. nonbanking concerns
84.0
U.S. liabilities reported by U.S. banks, not included
elsewhere
75.6
Dale R. DeBoer
University of Colorado, Colorado Springs
• Main portfolio
investment items
10 - 14
Balance of payments for the U.S.
• Summary accounts
–
–
–
–
–
Merchandise trade balance = - $548 billion
Trade balance = - $497 billion
Income balance = $33 billion
Current account = -$531 billion
Financial account balance = $544 billion
Dale R. DeBoer
University of Colorado, Colorado Springs
10 - 15
Balance of payments for the U.S.
• Summary accounts
–
–
–
–
–
–
Merchandise trade balance = - $548 billion
Trade balance = - $497 billion
Income balance = $33 billion
Current account = -$531 billion
Financial account balance = $544 billion
The balancing factor: statistical discrepancy
• Arises from the mis-recording of items in the balance of
payments accounts
• Statistical discrepancy = - $12 billion
Dale R. DeBoer
University of Colorado, Colorado Springs
10 - 16
The ORSB
• The Official Reserve Settlement Balance
(ORSB) measures the change in U.S. official
reserve assets and the change in foreign
official reserve assets in in the U.S.
• The ORSB accommodates for a deficit or
surplus in autonomous transactions
(transactions that occur for business or profit
motives).
Dale R. DeBoer
University of Colorado, Colorado Springs
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Historical values
Quarterly Balance on Net Exports
20
Billions
Jan-04
Jul-98
Jan-93
Aug-87
Feb-82
Aug-76
Mar-71
-40
Sep-65
-20
Mar-60
0
-60
-80
-100
-120
-140
-160
Source: Federal Reserve Bank
Dale R. DeBoer
University of Colorado, Colorado Springs
10 - 18
Historical values
Quarterly Capital Outflows
100
50
Jan-04
Jan-93
Feb-82
-100
Mar-71
Billions
-50
Mar-60
0
-150
-200
-250
-300
-350
Source: Federal Reserve Bank
Dale R. DeBoer
University of Colorado, Colorado Springs
10 - 19
Historical values
Quarterly Capital Inflows
500
400
Billions
300
200
100
Jan-04
Jan-93
Feb-82
Mar-71
-100
Mar-60
0
Source: Federal Reserve Bank
Dale R. DeBoer
University of Colorado, Colorado Springs
10 - 20
Historical values
Quarterly Net Capital Flows
200
Billions
150
100
50
Jan-04
Jan-93
Feb-82
Mar-71
-50
Mar-60
0
Source: Federal Reserve Bank
Dale R. DeBoer
University of Colorado, Colorado Springs
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