Introduction
Tour Itinerary
Destinations
Lusaka Stn.
COMESA
Central Bank
Issues
Theories
Benefits of Trade
Advantages
Trade Creation
Trading Blocs
Terms of Trade
Balance of Payts:
Introduction
Interpreting
Exchange Rates:
Introduction
Fixed
Floating
Effects
Marshall-Lerner
Devaluation
Protection:
Quotas
Tariffs
Surplus
Elasticity
Worksheets
Resources

Home Field Trips Trade Tour Balance of Payments Policies

Theories

Balance of Payments Policies

Next theory - Interpreting the Balance of Payments >>

In the case of an overall balance of payments deficit i.e. where the current and capital accounts are in deficit, LDCs such as Zambia have a number of policy options open to them.

1. Improve the current account balance by promoting export expansion or limiting imports or both.
   These objectives can be brought about by a number of measures:
   • Expand the export of copper and other primary commodities
   • Expand the export of secondary goods through adopting policies of import substitution
   • Introduce protectionist measures such as quotas, tariffs and other non-tariff barriers
   • Changing the value of the exchange rate through a devaluation or allow the currency to float and depreciate
   • Follow restrictive deflationary monetary and fiscal policy that reduces domestic demand and hence imports and reduces inflationary pressures in the economy
2. Improve the capital account balance by encouraging capital inflows.
   Again a number of possible measures are open to the government:
   • private foreign direct or portfolio investment
   • borrowing from foreign commercial banks
   • borrowing from foreign governments
   • borrowing from multilateral agencies such as the IMF

Next theory - Interpreting the Balance of Payments >>

Related Glossary Items:
Foreign Direct Investment
IMF
Current Account
Current Account Deficit
Protectionism
Tariff
Quotas
Fixed Exchange Rate
Floating Exchange Rate
Deflationary Policy

Related Issues:
Protectionist Policies of Zambia
Zambia's Exports and Imports
Zambia's Balance of Payments Situation
Zambia's Trade Policy

Related Theories:
The Economic Effects of a Devaluation
The Imposition of Quotas
The Imposition of Tariffs and Welfare Loss