Imports, together with exports, embody significant concepts in the flow of international trade. What are imports? Importing is when an entity or a country buys any goods or services from other countries, usually through shipments, freight aircraft, or mail. Are imports good for the economy? That’s the question we’re going to address in this article.
Are Imports Good for the Economy?
Imports often imply goods or services any country does not produce or cannot efficiently and affordably produce. Importers can be entities – individuals or companies. They usually import goods for different reasons, among others, to support their business or to re-sell to customers in the domestic markets.
For example, cosmetic or pharmaceutical manufacturers may import specific ingredients, like kaolin, to create their products. Another example is an automobile dealership in any country that specializes in importing and selling cars from Japan.
How Do Countries Benefit from Imports?
The key purpose of importing is to meet the demand for goods and services that are unavailable in the home country.
The importing country does not have both resources and capabilities to efficiently produce specific goods. It is also when companies or businesses cannot easily or affordably get goods or services in the domestic markets, thereby, they turn to purchase them from foreign markets.
Another benefit of importing is to lower operational or manufacturing costs. Let’s take an example from the car manufacturing business where an auto manufacturer imports parts from other countries to build its cars. The buying process is often cost-effective compared to creating them itself.
Also, importing goods in large quantities usually offers discounts. It means the manufacturer can save costs and then resell the goods at a price that can further boost their profits.
Are Imports The Main Source of Economic Growth?
Are imports good for the economy? One of the economic growth indicators is gross domestic product (GDP) and imports do not have a direct impact on it. Increasing imports do not always mean decreasing GDP.
We can say that a country has a healthy economy when both its exports and imports are in balance and experiencing growth. Imports characterize an outflow of funds from a country – local entities (the importers) make payments to other entities abroad.
A higher level of imports also signifies robust home demand, hence, a growing domestic economy. It is more favorable if the imported goods are primarily productive assets – like equipment or machinery – since those assets help improve a country’s economy in the long term.
How Imports Help the Economy?
Importing activities affect the economy in several factors, mainly on two levels – micro and macro.
At The Micro Level
At this level, imports impact domestic competition by increasing supply in the home country markets. As a result, there will be more pressure, especially on prices and profitability in the local markets.
However, another impact of imports is increasing choices for consumers as they have more alternatives other than domestic products. Consequently, there is more possibility for them to get lower-priced yet higher-quality products based on their preferences.
Imports do not only trigger competitiveness but also innovativeness and technological advancement. Local producers have to compete with imported goods on supply, price, and profitability. Accordingly, this requires them to be more innovative, thus, competitive.
Importing activities also imply channels for knowledge and technology transfer. For instance, when a local company imports high-tech machines or other productive assets, they buy not only physical capital goods but also the know-how to make sure the proper use of the machines.
At The Macro Level
Imports impact several economic indicators like exchange rates and inflation, as well as the leakage of income’s circular flow model. The latter is about any income produced in the home economy that flows out, therefore, domestic producers cannot use it to finance or produce further goods or services.
Whether imports are good for the economy or not, any slight increase in import activities might signal economic growth. It means the need for more imported supplies to fulfill domestic demand. That’s their role.
It is also true when you work within the industrial or manufacturing field, like the kaolin-based business. PT YUKAMI is ready to help you with high-quality kaolin supply to efficiently and affordably create any of your products to meet your increasing home demands.
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