Balance of Payments Review of Multiple Chapters

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The other implication is the impact of the balance of payments on the business. The negative balance of payments represents an outflow of wealth, which slows domestic economic growth. The U.S. becomes less competitive as a result. For most companies, this places downward pressure on costs. In many cases, the downward cost pressure results in offshoring, which exacerbates the balance of payments deficit. Griswold (1999) argues that this is beneficial to the U.S. economy overall. Increases in the trade deficit are correlated with positive economic outcomes. For a company involved in importing it certainly means a higher level of activity -- more goods are coming in because more people are buying them.

Conclusion: Trade transactions are directly reflected in, and an important component of, the balance of payments.

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For business, the balance of payments is relevant for its impact on the economy. A negative balance of payments places downward pressure on costs, which can affect strategic decision-making. In addition, the balance of payments can impact on key economic variables such as interest and exchange rates, again impacting decision-making. Firms therefore need to monitor the balance of payments for trends that may have an impact on the business. Firms that are sufficiently large to move the balance of payments should be especially mindful of their impacts.

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