Structural disequilibrium refers to a situation in which changes in the supply and demand for exports and/or imports lead to a disequilibrium in a country's balance of payments.
Understanding Structural Disequilibrium
This specific type of disequilibrium in a country's balance of payments arises from underlying shifts in the structure of its trade relationships, often driven by fundamental changes rather than temporary fluctuations. It directly impacts the flow of goods and services crossing borders by altering the dynamics of supply and demand.
Common Causes
According to the provided reference, structural disequilibrium often results from significant changes within a country or its trading partners. These include:
- Changes in technology: Advancements or shifts in technology can alter production costs, create new products, or make existing ones obsolete, thereby changing the global supply and demand for a country's exports or imports.
- Changes in government policy: Policy decisions such as implementing tariffs, quotas, subsidies, or trade agreements can directly influence the costs and quantities of goods traded, leading to imbalances.
- Changes in the economy: Broader economic shifts like recessions, booms, changes in income levels, or shifts in consumer preferences within a country or its trading partners can profoundly impact the demand for imports and the supply of exports.
Practical Insights
Understanding the causes helps illustrate how structural disequilibrium manifests:
- A technological breakthrough in one country might make its key export industry significantly more competitive, leading to a sustained increase in demand that imbalances the trade accounts of less technologically advanced competitors.
- A government deciding to heavily subsidize a domestic industry can flood the export market with cheaper goods, altering global supply dynamics and potentially causing disequilibrium elsewhere.
- A prolonged recession in a major trading partner reduces their purchasing power, causing a sharp, sustained drop in demand for imports from other countries, creating a structural issue for the exporting nation's balance of payments.
These structural shifts are often more persistent than cyclical or temporary imbalances and may require fundamental economic adjustments to correct.
