Net exports equals exports minus imports. The value of net exports gives the difference between exports and imports.
a. Exports (X): exports are domestically produced final goods and services that are sold abroad. In other words, it is the sale of domestically produced goods and services to foreigners.
b. Imports (M): imports are purchases by domestic buyers of goods and services that were produced abroad. For instance, Nigeria’s purchases of goods and services from abroad.
The difference between imports and exports (net exports) gives the net amount of spending on domestically produced goods and services. Net exports reflect the net demand by the rest of the world for a country’s goods and services.
Net exports can be defined as the value of a country's total exports minus the value of its total imports. It is used to calculate a country's aggregate expenditures, or GDP, in an open economy. We can also define it as the difference between a country's total value of exports and total value of imports. Depending on whether a country imports more goods or exports more goods, net exports can be a positive or negative value.
In other words, net exports is the amount by which foreign spending on a home country's goods and services exceeds the home country's spending on foreign goods and services. For example, if foreigners buy N300 billion worth of Nigerian exports and Nigeria buy N250 billion worth of foreign imports in a given year, net
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exports would be positive N50 billion. Factors affecting net exports include prosperity abroad, tariffs and exchange rates.
3.2.1. Measurement of Net Exports
Net exports are measured by comparing the value of the goods imported over a specific time period to the value of similar goods exported during that period. The formula for net exports is:
Net Exports = Value of Exports - Value of Imports
For example, let's suppose Nigeria purchased N3 billion of gasoline from other countries last year, but it also sold N7 billion of gasoline to other countries last year. Using the formula above, Nigeria's net gasoline exports are:
Net Exports = N7 billion - N3 billion = N4 billion
Net exports are an important variable used in the calculation of a country's GDP.
When the value of goods exported is higher than the value of goods imported, the country is said to have a positive balance of trade for the period. When taken as a whole, this in turn can be an indicator of a country's savings rate, future exchange rates, and to some degree its self-sufficiency, although some economists constantly debate the idea.
Finally, net exports are negative when there is a decrease in the equilibrium GDP.
This means that a country is importing more than what the country exports. There is no balance of trade in this situation.
Self Assessment Exercise
Define Net export? Discuss the term “measurement of net exports”.
4.0 Conclusion
In this unit, we can conclude that Gross Private Domestic Investment is the official item in the National Income and Product Accounts maintained by the Bureau of Economic Analysis measuring capital investment expenditures. Gross Private Domestic Investment is expenditures on capital goods to be used for productive activities in the domestic economy that are undertaken by the business sector during a given time period. These expenditures tend to be the least stable of the four expenditures, averaging between 12-18 percent of gross domestic product However, net exports account for the balance or about 13% of the GDP and are equal to the difference between exports and imports of goods and services.
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5.0 Summary
The unit has vividly takes a look at Gross Private Domestic Investment to net exports but Gross private domestic investment is the official government measure of investment expenditures undertaken by the business sector. It seeks to quantify that portion of gross domestic product that is purchased by the business sector and which is used, in theory at least, for investment and the acquisition of capital goods while the net exports are also defined as the trade balance of the country and imports deduct from GDP and exports also add to the figure.
6.0 Tutor-Marked Assignment
1. Discuss how Gross Private Domestic Investment is calculated in an economy.
2. Distinguish between Gross Private Domestic Investment and Net Exports 3. Differentiate between Positive Net Exports and Negative Net Exports 7.0. References/Further Readings
Ajayi, I. (2005) Paper presentation on Component of Goss domestic product,
Mainframe Publiction, Lagos.
Folawewo A. (2009) Introductory Economics (2009), Ibadan Distance learning Series, university Press Ibadan.
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UNIT 3 GOVERNMENT CONSUMPTION AND GROSS INVESTMENT