Difference Between BOT and BOP

Difference Between BOT and BOP

Difference Between Balance Of Payment And Balance Of Trade

What is the major difference between BOT and BOP?

This article will focus on the basic concept of Balance Of Payment (BOP) and Balance Of Trade (BOT).

WHAT IS BOT?

It is the difference between the money value of exports and imports of material goods(includes visible items and merchandise). Clearly, the 2 transactions which determine BOT are exports and imports of goods which determine BOT. Exports and imports of invisible services such as shipping, insurance, banking etc are not included.

BOT may be in surplus or deficit or in equilibrium. If the exports of the visible items are more than the value of imports of visible items, then the BOT is said to be positive or favourable and is in surplus. If the exports are less than imports, the BOT is unfavourable and is in deficit. In case, exports are equal to imports, then the BOT is said to be in equilibrium.

WHAT IS BOP?

It is the difference between a nation’s total payments to foreign countries and its total receipts from them. In other words, it is a systematic record of a country’s receipts and payments in international economic transactions in a specific period of time.

Since, BOP takes into account exchange of both visible and invisible items, therefore, it represents a wider and a better picture of country’s international transactions than the BOT. Each transaction is entered on the credit and debit side of a balance sheet.

Main items on credit side:

  • Exports of goods( visible exports)
  • Exports of services( invisible items)
  • Unilateral transfers
  • Capital receipts

Main items on the debit side:

  • Imports of goods
  • Imports of services
  • Unilateral transfers
  • Capital payments

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