Question

It has been argued by economists that the depreciation of a home country's currency makes home goods cheaper for foreigners and foreign goods more expensive for domestic residents while the appreciation of a home country's currency makes home goods more expensive for foreigners and foreign goods cheaper for domestic residents. Briefly discuss three (3) determinants of imports and three (3) determinants of exports (Hint: each determinant should be a sub- heading and your discussion should be maximum 1 page)

Answer 1

Determinants of imports can be-

1) Income in the importing country. If income in the importing country is high, it's capacity to import will be higher. So it will import more

2) Price ratio- If the same good is available for a cheaper rate after adjusting for import duties etc, then people will prefer to import it

3) Capital and technology- If a country is technologically advanced, then it might produce most products. So imports will be less. But otherwise, it may import machinery and technology from other countries.

Determinants of exports are-

1) Income of other countries- If other are rich, there will be higher demand of goods. Similarly from above, price can be a factor

2) Tax regime in the country-If export duties are less, there will be greater exports

3)Technology- If a country is more advanced or has an abundance of natural resources like minerals and oil, it can export them