Syllabus T. Y. B. A. Paper : IV advanced economic theory with effect from academic year 2010-11 in idol

 
6) Inflation: 
Rapidly rising prices is common issue in almost all the 
countries but it is particularly grave in the developing economies. 
Due to inflation they become good to sell in but bad to buy from. It 
results in less exports and more imports affecting BOP 
disequilibrium. A rise in the comparative price level certainly 
encourages imports and discourages exports, resulting in a deficit 
balance of payments. 
 
7) Trade barriers: 
Many countries impose tariff and non-tariff barriers to restrict 
free trade. This reduces exports also and affects in BOP deficit. 

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Putting restriction like quota, tariff barriers, free flow of goods and 
services is restricted. It brings effects on the composition of exports 
and imports resulting in BOP disequilibrium. 
 
8) Reciprocal Demands: 
Since intensity of reciprocal demand for products of different 
countries differs, terms of trade of a nation may be set differently 
with different countries under multi-trade transactions which may 
lead to disequilibrium in way. 
9) High developmental and Investment programmes: 
Huge development and investments programmes in the 
developing economies are root causes of the disequilibrium in the 
balance of Payments of these countries. Their propensity to import 
goes on increasing for want of capital for rapid industrialization; 
while exports may not be boosted up to that extent as these is the 
primary producing countries. Moreover, their exports quantum of 
primary commodities may decline as newly-created domestic 
industries may require them. Thus, there will be structural changes 
in the BOP and structural disequilibrium will result. 
Check your progress: 
1) What are the reasons responsible for BOP deficit?