Deficit Balance of Payment

Deficit Balance of Payment

Introduction

Balance of payment:

It is usually defined as the sum of capital, current and financial account, which necessarily needs to b zero (Arkolakis, 2011). Actually, it shows the overall imports and exports of a country..

Deficit balance of payment:

It is the negative balance of payment, where the payments done by country exceed the amount received by the same country. Here, a lot of money is going out of the country as compared to the money coming in(www.econguru.com).

South Korea faced its first annual current account deficit in 11 years in 2008 as their oil prices increased the import bills that show a deficit. According to the Bank of Korea report, deficit was occurred with an amount of US $6.41 billion in 2008(search.proquest.com).

Discussion

South Korea had a deficit in January for last 2 years because of debt crisis but they had a surplus in February on high exports of automobiles and steel products. They suffered with a deficit of $772 million in the first month of 2012 which can be compared with a surplus of $2.81 billion in December 2012. The first deficit was shown in January and since February 2010 it reached the amount of $549million (Nam, 2012).

Reasons

Weak export of ships

South Korea faced a deficit in January because of weak exports of ship that affects the money coming in the country. As imports were similar or in a condition they have to b so that creates a surplus (Nam, 2012).

2. Economic growth

This is one of the reasons in South Korea that national income is increasing as a result disposable income also becomes more for the consumption. As consumption increases, supply decreases and for this reason we need to increase our imports as compared to exports.

3. Competitive

In order to compete with the other established countries, they faced a ...