Causes of Disequilibrium

Causes of Disequilibrium

Any disequilibrium in balance of payments is the result of imbalance between receipts and payments for exports and imports. A deficit in balance of payments of which we are more concerned is obviously import more than exports, it means payment side of balance of payments more than receipt side.

Causes of Disequilibrium

INCREASE IN IMPORTS  

# Import of essential Goods and Services :

Countries which don’t have enough supply of essential goods like food items or raw material or essential capital equipment are required to import them. Being essential goods it is impossible to reduce their imports.

# Development  Programmers :

Developing countries which have planned to development programmers required to import capital goods, raw material and highly skilled man-power.

# Population Growth :

Most countries experience an increase in population and in some like India and China the population is not only large but continuously increase. To meet their needs, import of essential goods increase as population increase. 

DECLINE in EXPORTS :

# Low income Elasticity of Demand : 

If a Country Experience a low income elasticity of demand for its export then the exports may not increase.

# Discovery of Substitutes :

Technological improvement also reduce the raw material requirement thus reducing the demand  of raw material.

For e.g plastic for rubber , Synthetic fibre for cotton.

CYCLICAL TRANSMISSION :

Business cycle affect international trade. Recession or Depression in one or more countries may affect the rest of the world.  The negative effect of trade cycle that is low income , low demand etc. Are transmitted from one country to another. Low demand for imports causes deficit in exporting countries.

CAPITAL FLIGHT :

If economic and political troubles are sensed  then capital is the first to run away from that country. Speculation in a foreign exchange market may also result in capital flight.

STRUCTURAL  ADJUSTMENT  :

Many countries specially those which were subject to more controls by the governments or central authorities, have in recent years been undergoing structural changes. Their economies are being liberalised , private sectors have been given more freedom and responsibilities.

GLOBALIZATION  :

The world economic environment has been undergoing a change under the World Trade Organisation . Competition has been increased due to the globalization of the international economic relations. The emerging new global economic order has brought in certain problem for some countries which have resulted in the balance of payments disequilibrium.