Definition: Net exports are defined as the difference between the exports and the imports realized by an economy. The value of net exports is positive or negative depending on whether a country is an importer or an exporter, respectively.
What Does Net Exports Mean?
What is the definition of net exports? This goods and services serve as a measure of an economy’s exports to foreign countries and are usually expressed as a percentage of a country’s Gross Domestic Product (GDP). In that way, governments can quantify the exports into a percentage of domestic goods and services, which are purchased by the foreign sector.
The value of net exports is calculated by deducting the total value of the goods that an economy imports from the total value of the goods that an economy exports during a specified period, usually a year. When the total value of exports is greater than the total value of imports, an economy has a positive trade balance. Conversely, when the total value of imports exceeds the total value of exports, the economy has a negative trade balance.
Let’s look at an example.
The net number includes a variety of exported and imported goods and services, such as cars, consumer goods, films and so on. If a country exports $200 billion worth of goods and imports $185 billion worth of goods (exports > imports), then its net exported goods are $200 billion – $185 billion = $15 billion. In this case, because the net exported goods are a positive number, they are added to the country’s GDP. Conversely, if a country exports $185 billion worth of goods and imports $200 billion worth of goods (exports < imports), then its net exported goods are $185 billion – $200 billion = – $15 billion. In this case, because the net exported goods are a negative number, they are subtracted from the country’s GDP.
Exchange rates have an impact on the relative prices of exports and imports. For example, Canada exports its goods and services to the United States for an exchange rate of 1 Canadian dollar per 1.22 USD. If the exchange rate depreciates to 1.15 USD, importing goods from the United States will be more expensive, thereby lowering Canadian imports. Conversely, if the exchange rate appreciates to 1.28 USD, importing goods from the United States will be cheaper, thereby increasing Canadian imports.
Define Net Exports: Net export means the difference between the imports and exports of a country.