Question

Using economic theory "Factor proportion theory" how do foreign imports\exports affect Gross national product

Answer 1

Factor proportions theory : We know that one consition for trade is that countries differ in availability of factors of production . This theory is based on differences in factor endowments between countries . According to this theory , countries should produce and export goods that require resources of factors that are abundant relatively in the country , while import goods that utilize resources which are relatively in short supply .

GNP is the the total value of goods produced and services provided by a country during one year, equal to the gross domestic product plus the net income from foreign investments . Net exports is a part of GDP , hence it is a part of GNP . More the availability of the abundant factor , more is the export . So GNP rises , vice versa .