What Is It?
Exports are goods and services produced in one country and purchased and consumed by residents and businesses of other countries.
Gross Domestic Product (GDP) is the total value of the goods and services that are produced within a country's borders by citizens and non-citizens in a fiscal year.
How Is It Calculated?
Exports is a calculation of the value of a) physical merchandise, including freight and insurance, and b) services, including royalties, license fees, communication, construction, financial, information, and government services, that originate in one country but are purchased and consumed by individuals, businesses, and governments of foreign countries.
Gross Domestic Product (GDP) is calculated using one of three methods:
- Production Method: The sum of all value added to each stage of production of all goods and services.
- Income Method: The sum of all wages, profits, interest, and rents.
- Expenditure Method: The sum of the purchase values of all goods and services.
There will be slight variances when comparing these three methods, but they produce fundamentally the same result.
Exports as a percentage of GDP is calculated by dividing exports by GDP (Exports ÷ GDP) and is expressed as a percentage (%).
What Does It Mean?
The value of exports to a country’s economy is hotly disputed by economists, politicians, businesses, and the public. The following statements, however, are generally accepted to be true:
- The profitability of export trade is generally higher than domestic trade.
- Workers in export industries generally receive a higher rate of pay than those in domestic-only businesses.
- Businesses that export are primed to be more competitive in global markets.
- Businesses that export often achieve greater economies of scale and lower production costs.
- Countries that are reliant upon commodity exports are subject to both positive and negative world commodity prices and demand.
- Businesses that export are subject to credit risk and foreign exchange fluctuations.
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