1. Introduction to the Balance of Payments

2. Balance of Payments
Financial Account: money crossing borders to buy/sell assets, bank deposits
Capital Account: tiny
Current Account: trade in goods & services, investment income, current transfers
Two sides must balance! A deficit on one will be matched by a surplus on the other.

3. Current Account Trade in goods Trade in services
Net Income flows (interest on foreign bank acc’ts, dividends on share held in foreign companies
Net Transfers – payment from one gov’t to another (development aid, EU membership subscription payments)

4. Financial Account
Financial flows – investment from one country to another (UK firm buys factory in India), purchasing of foreign shares/bonds
Bank deposits across borders
Official changes in gov’t foreign exch. reserves
*Should offset the current acc’t balance!*

5. Total goods and services Current Account as % GDP
UK current account
£ billion
Trade in goods
Trade in services
Total goods and services
Total net income
Current transfers
Current Account
Current Account as % GDP
1970
0.0
0.5
0.4
-0.1
0.8
1.60
1980
1.3
4.4
5.7
-2.4
-1.7
1.7
0.80
1990
-18.7
6.6
-12.1
-4.7
-4.8
-21.6
-3.80
2000
-33.0
15.0
-18.0
2.0
-9.8
-2.8
-2.60
2002
-47.7
19.6
-28.0
-8.9
-18.4
-1.70
2006
-76.6
35.8
-40.7
9.5
-11.9
-43.1
-3.20
2010
-98.5
58.8
-39.7
23.0
-20.1
-36.7
-2.50

6. UK Trade Account Data What do we export and import?
£ billion, 2010
Exports
Imports
Trade balance
Food, beverages and tobacco
16.1
33.5
-17.4
Basic materials
7.3
10.3
-2.9
Total oil
31.3
36.0
-4.7
Total semi-manufactured goods
80.2
88.3
-8.1
Motor cars
17.2
20.0
-2.8
Other consumer goods
20.6
47.4
-26.8
Intermediate goods
40.6
52.6
-12.0
Capital goods
35.1
48.4
-13.3
Ships and aircraft
10.6
15.5
-4.9
Total finished manufactured goods
124.2
184.0
-59.8
Total
265.7
364.2
-98.5

7. What about trade in services
£ billion, 2010
Exports
Imports
Balance
Transportation
20.3
18.7
1.6
Travel
21.0
32.4
-11.4
Financial services
42.2
10.7
31.5
Royalties and fees
8.7
5.3
3.4
Other business
52.2
28.5
23.7
Total
171.1
112.3
58.8
Other business includes law, management consulting, engineering, research and
development, advertising etc.

8. Exports and Imports as % GDP (2010)