Difference between balance of trade and current account

The balance of trade (BOT) and the current account are two components of the balance of payments (BOP).

The BOT is the difference between the value of a country’s exports and the value of its imports for a given period. It is calculated as the total value of exports minus the total value of imports. A country that imports more goods and services than it exports in terms of value has a trade deficit. Conversely, a country that exports more goods and services than it imports has a trade surplus.

The current account records the inflow and outflow of goods and services into a country, earnings on investments, both public and private, and credits and debits on the trade of merchandise, which includes goods such as raw materials and manufactured goods that are bought, sold, or given away (possibly in the form of aid). Services refer to receipts from tourism, transportation, engineering, business service fees (from lawyers or management consulting, for example), and royalties from patents and copyrights. The BOT is typically the biggest bulk of a country’s balance of payments, as it makes up total imports and exports.

In summary, the BOT is a narrower concept that only includes the value of goods and services traded between countries, while the current account is a broader concept that includes the BOT and other international transactions such as earnings on investments and services.

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