The balance of trade (BOT), also known as the trade balance, refers to the difference between the

monetary value of a country’s imports and exports over a given time period.
Positive trade balance indicates a trade surplus Negative trade balance indicates a trade deficit.

The BOT is an important component in determining a country’s current account.

INTERPRETATION OF BOT FOR AN ECONOMY

To the misconception of many, a positive or negative trade balance does not necessarily indicate a
healthy or weak economy. Whether a positive or negative BOT is beneficial for an economy depends
on the
 countries involved
 the trade policy decisions,
 the duration of the positive or negative BOT, and
 the size of the trade imbalance, among other things.

In short, the BOT figure alone does not provide much of an indication regarding how well an
economy is doing. Economists generally agree that neither trade surpluses or trade deficits are
inherently “bad” or “good” for the economy.

REASONS FOR INTERVENTION BY THE HOST COUNTRY

Control Balance of Payments

Many governments see interventions as the only way to keep their balance of payments
under control. First, because of foreign direct investment inflows are recorded as additions to the
balance of payments, a nation gets a balance-of-payments boost from an initial FDI inflow.
Second, countries can impose local content requirements on investors from other nations
coming in for the purpose of local production. This gives local companies the chance to become
suppliers to the production operation, which can help reduce the nation’s imports and thereby
improve its balance of payments.
Third, exports (if any) gene