BY T Lazarus Nyagumbo, International Economics Specialist.
Manchester. (News of The South) – The main causes of BOP Current Account Deficits, when imports are greater than exports could be:
A strong domestic currency eg dollarisation leading to cheaper higher imports and expensive lower exports.
Weak below full capacity domestic production due to various reasons eg sanctions
Similarly, poor domestic competitiveness of export oriented industries eg inefficient ineffective technology, high production costs etc
Increased domestic consumers preferences for imported goods especially due to the advantages of dollarisation.
Higher domestic price level or inflation makes exports less competitive
It could be that there is an economic slow down or even a recession in other trading partners and this will decrease the demand for exports.
However, when restrictive economic sanctions or other trade barriers are totally removed and a free trade environment cultivated, the following pertinent benefits may accrue:
•More Trade Creation Opportunities
•More economies of scale
•Enhanced Market Competition
•Export led growth
•More consumer choice or variety of goods and services
•Lower consumer prices
•More increases technology transfers, innovation
•Higher living standards
®TLN Economics 2018
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