Foreign Selling

• Sending There: Exports largely consist of goods physically shipped to countries in the foreign sector. OmniMotors has a substantial South American market for its popular XL GT 9000 Sports Coupe. The Quadra DG Computer Works sells a great number of its state-of-the-art computer system, the Quadra 9000, to willing buyers in Australia and New Zealand. Wacky Willy Stuffed Amigos, produced by The Wacky Willy Company, are extremely popular throughout Asia. Even Phil Gardener, the zucchini grower, sells zucchinis to a family in Paraguay.


• Buying Here: Exports also include any goods or services purchased by foreign citizens within the domestic economy. The purchase of a domestically produced Wacky Willy Stuffed Amigo at the local MegaMart Discount SuperCenter by a tourist from Spain, is an export. When foreign tourists buy tickets to ride the Monster Loop Death Plunge roller coaster at the Shady Valley Amusement Park, then exports occur. Educational services purchased by foreign students enrolled at the Ambling Institute of Technology also fall under the heading of exports. Other services purchased by foreign individuals, including medical exams, dental check-ups, and legal advice, are also exports.

A World of Trade

To see how exports fit into the world of global trade, consider a few notions:

• Foreign Trade: Foreign trade is the exchange of goods and services that takes place among countries. One country buys. Another country sells. Foreign trade is essentially a market transaction in which the buyers reside in one nation and the sellers reside in another. Exports view this trading process from the perspective of the selling country.


• Imports: Imports are goods and services produced by the foreign sector and purchased by the domestic economy. Imports are goods bought from other countries. Imports view the trading process from the perspective of the buying country.


• Net Exports: Net exports are the difference between exports and imports, that is, exports minus imports. This is the "balance of trade" between exports and imports. If exports are greater than imports, then net exports are positive. If exports are less than imports, then net exports are negative. Net exports provide a handy way of indicating the overall interaction between the domestic economy and the foreign sector.

A Circular Flow Injection

The Circular Flow

A basic representation of the circular flow is displayed to the right. The components of this model are the four macroeconomic sectors--household, business, government and foreign--and the three macroeconomic markets--product, resource, and financial.

Exports are the payment flow from the foreign sector to the domestic business sector in exchange for the physical flow of goods and services from the domestic business sector to the foreign sector. The key implication from the circular flow analysis is that an increase in exports EXPANDS the total volume contained in the domestic flow. That is, exports are considered an injection into the circular flow.

This expanded volume has two important, interrelated implications:

• First, it means increases gross domestic product received by the domestic business sector, factor payments to domestically-owned resources, national income earned by domestic citizens, and consumption undertaken by the domestic household sector.


• Second, it means that there is more income that can be diverted to domestic saving to the financial markets for use by the domestic business sector for capital investment and taxes to the domestic government sector for government purchases.

The Good and The Bad

• The Good: Exports are good for the overall volume of the circular flow. They are also good for domestic companies (and their resource owners) who have additional markets for their products. These companies produce more output and their resource owners receive more income.


• The Bad: Exports are bad for domestic consumers. The foreign sector provides greater competition on the buying side, meaning domestic consumers are likely to pay higher prices.