dale r. deboer university of colorado, colorado springs 10 - 1 an introduction to international...

Dale R. DeBoerUniversity of Colorado, Colorado Springs

10 - 1

An Introduction to International Economics

Chapter 10: Balance of Payments

Dominick Salvatore

John Wiley & Sons, Inc.

10 - 2Dale R. DeBoerUniversity of Colorado, Colorado Springs

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.


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


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


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

Credit

(+)

Debit

(-)

Goods export

$500

Capital outflow

$500



• Examples– $500 in exports to be paid

in 3 months time– $200 spent by a US

tourist in London on services

Credit

(+)

Debit

(-)

Service import

$200

Capital outflow

$200




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

Credit

(+)

Debit

(-)

Unitlateral transfer

$100

Capital outflow

$100




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.

Credit

(+)

Debit

(-)

Capital outflow (stock)

$400

Capital inflow (bank

balance)

$400


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 1,314.9

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 99.1

U.S. Government receipts 4.7

Compensation of employees 3.0



• Service exports– These factors show the

source of total service exports.

• Income receipts are primarily income earned on past investment activities abroad.

Exports of goods and services and income receipts 1,314.9

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 99.1

U.S. Government receipts 4.7

Compensation of employees 3.0



Imports of goods and services and income payments -1,778.1

Imports of goods and services -1,517.0

Goods, balance of payments basis -1,260.7

Services -256.3

Direct defense expenditures -25.1

Travel -56.6

Passenger fares -21.0

Other transportation -44.8

Royalties and license fees -20.0

Other private services -85.8

U.S. Government miscellaneous services -3.0

Income payments -261.1

Income payments on foreign-owned assets in the United States -252.6

Direct investment payments -68.7

Other private payments -111.9

U.S. Government payments -72.0

Compensation of employees -8.5

Unilateral current transfers, net -67.4

U.S. Government grants -21.9

U.S. Government pensions and other transfers -5.3

Private remittances and other transfers -40.2


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



U.S.-owned assets abroad, net -283.4

U.S. official reserve assets, net 1.5

Gold …

Special drawing rights 0.6

Reserve position in the International Monetary Fund 1.5

Foreign currencies -0.6

U.S. Government assets, other than official reserve assets, net 0.5

U.S. credits and other long-term assets -7.3

Repayments on U.S. credits and other long-term assets 8.0

U.S. foreign currency holdings and U.S. short-term assets, net -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

• Main portfolio investment items

• Direct investment



• Main portfolio investment items

• Direct investment

Foreign-owned assets in the United States, net 829.2

Foreign official assets in the United States, net 248.6

U.S. Government securities 194.6

U.S. Treasury securities 169.7

Other 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 5.1

Other foreign assets in the United States, net 580.6

Direct investment 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



• Summary accounts– Merchandise trade balance = - $548 billion– Trade balance = - $497 billion– Income balance = $33 billion– Current account = -$531 billion– Financial account balance = $544 billion



• 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


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).


Historical values

Quarterly Balance on Net Exports

-160

-140

-120

-100

-80

-60

-40

-20

0

20M

ar-6

0

Sep

-65

Mar

-71

Aug

-76

Feb

-82

Aug

-87

Jan-

93

Jul-9

8

Jan-

04

Bil

lio

ns

Source: Federal Reserve Bank


Historical values


Quarterly Capital Outflows

-350

-300

-250

-200

-150

-100

-50

0

50

100

Mar

-60

Mar

-71

Feb

-82

Jan-

93

Jan-

04

Bil

lio

ns


Historical values


Quarterly Capital Inflows

-100

0

100

200

300

400

500

Mar

-60

Mar

-71

Feb

-82

Jan-

93

Jan-

04

Bil

lio

ns


Historical values


Quarterly Net Capital Flows

-50

0

50

100

150

200

Mar

-60

Mar

-71

Feb

-82

Jan-

93

Jan-

04

Bil

lio

ns

dale r. deboer university of colorado, colorado springs 10 - 1 an introduction to international...

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