Why do many developing countries have a balance of trade deficit?

Good afternoon...
Great question and I hope I can shed some light on this for you. I will however, simplfy this idea to make it make more sense.

First you must keep in mind that balance of trade includes both exports and imports. The two combined form what's called a balance of trade. The balance of trade is one part of an account, if you will. A lot like our checking accounts we use here. We import and export money out of that account.

Developing countries struggle with numerous issues, most new countries would. Everything from accurate accounting to proper plans in place to measure the systems being used. Much like when we balance our own checking accounts as young adults. It's trial and error. The diffference here, as I over-simpfly, is they are dealing with a lot bigger numbers and other factors than you and I do.

The trade balance is identical to the difference between a country's outsource and its domestic demand, which does not include money re-spent on foreign stocks, nor does it factor the concept of importing goods to produce for the domestic market.

As I mentioned above now spin this with trying to measure and use correct accounting cab be extremely problematic. As an illustration of this problem, when official data for all the world's countries are added up, exports exceed imports by a few percent; it appears the world is running a positive balance of trade with itself. This cannot be true, because all transactions involve an equal credit or debit in the account of each nation. The discrepancy is widely believed to be explained by transactions intended to launder money or evade taxes, smuggling and other visibility problems. However, especially for developed countries, accuracy is likely to be good.

Hope this helps...

Dear Life 1973

US's is accounting huge deficit every year in Trade balace which is highest in the world, but how it is economic super power of the world.

Hai snehitan
1,Interest payment on dollar transactions around the world.
2, Since FDI inflow is highest for US. Thus credit available for usage by the population was huge. For example US population overspend 3times their disposable income last year.
3, Since liquidity is available in the market aggregate demand increases & hence the aggregate supply has to increase to hit a equilibrium on natural real GDP.
4, Since the demad increases the price increases and hence the market valuation for the assets.
It just goes on and on. Your question can be answered keeping different views by different people.