Imports

Imports

Imports – definition

Imports are the value of foreign goods and services bought by a country’s households, firms, government agencies, and other organisations in a given period of time.

Visible imports include payments for final products and intermediate goods, including oil and other commodities, finished and part-finished goods, and components. Invisible imports include payments for financial services, management services and tourist spending abroad.

In terms of the flow of economic activity, import spending is a leakage (or withdrawal) out of the circular flow of income.

Determinants of imports

Factors affecting the level of imports over time include a variety of micro-economic and macro-economic factors:

  1. National income (and changes in national income) – given that imports are a function of national income [m = fY], a change in income (Y) will lead to a change in imports (m). This is because spending in an economy depends upon income. In an open economy a proportion of income will be imported. ‘f’ in this simple equation is the ‘marginal propensity to import’ (mpm) which is:Δm/Δy

    Hence, if national income increases by $60b and imports increase by $20bn, then the mpc is 0.3.

  2. Macro-economic policies which indirectly affect imports via their effect on national income, such as monetary and fiscal contraction, or expansion.
  3. Income elasticity of demand for imports will also affect the extent to which changes in national income will affect the value of imports. In many cases the income elasticity of demand for imports is greater than one, especially for ‘luxury’ imports such as motor vehicles.
  4. Relative prices of imports compared with locally produced goods and services.
  5. The domestic inflation rate relative to inflation abroad.
  6. The real exchange rate, which affects real import prices.
  7. Trade barriers and membership of trading blocs.
  8. Supply-side factors, such as productivity levels, the flexibility or labour markets, and education and training – all of which affect the quality and reliability of domestic products in comparison with imports.