Distinguish between BOT and BOP.
Comparison between BOT and BOP. Briefly BOT is the difference between money value of imports and exports of material goods only whereas BOP is the difference between a country's receipts and payments in foreign exchange. Balance of payments is a wider concept as compared to balance of trade because BOT is just one of the four components of the former. BOT includes only export and import of goods whereas BOP includes (i) export and import of goods (ii) export/import of services (iii) unilateral receipts/payments and (iv) capital receipts/payments. Therefore, BOP represents wider and comprehensive picture of a country's economic transactions with the rest of the world than the Balance of Trade. Both are compared below.
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BOT |
BOP |
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1 |
It records only merchandise (i.e., goods) transactions. |
1 |
It records transactions relating to both goods and services. |
|
2 |
It does not record transactions of capital nature. |
2 |
It records transactions of capital nature. |
|
3 |
It is a narrow concept because it is only one part of BOP account. |
3 |
It is a wider concept because it includes balance of trade, balance of services, balance of unilateral transfers and balance of capital transactions. |
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4 |
It may be favourable, unfavourable or in equilibrium. |
4 |
It always remains in balance in accounting sense because receipt side is always made to be equal to payment side. |
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5. |
Deficit in BOT cannot be met by BOP. |
5. |
Deficit in BOP can be met through BOT. |
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6. |
It is not true indicator of economic relations or economic prosperity of a country. |
6. |
It is true indicator of economic performance of an economy. |
