Kinds of Disequilibrium in Balance of payments (BOP)

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.What are the kinds of disequilibrium in the balance of payments ?

Kinds of Disequilibrium in BOP

These are as under:

(a) Cyclical Disequilibrium –

Cyclical disequilibrium arises from the business cycles. Occurrence business cycle, is necessary. Business cycles create cyclical disequilibrium in the following conditions:

1. If income elasticities of demand differ in countries, cyclical disequilibrium may occur from differences in the income elasticities of demand for imports.

2. If cyclical disequilibrium occurs from differences in the price elasticities of demand for imports in countries price rise during the boom and fall during the depression.

3. If intensity of booms and depressions differs in different countries BOP remains in equilibrium. Other things remain the same, if the business cycle is intense.

4. If timings of the phases of the cycles differ in countries, cyclical disequilibrium in the BOP occurs when phases of cycle occur at different times in different countries.

(b) Secular Disequilibrium –

Secular disequilibrium occurs from long-run slow moving and deep-seeded changes in the economy due to capital formation growth of population, technological markets, resources etc. A developing country requires big investment.

(c) Structural Disequilibrium –

1. Change in Supply – It occurs from a change in supply. Production failure decreases the capacity to export and increases the need for imports. It is a cause of structural deficit in the balance of payments.

2. Decline in Service Income from Abroad – It may occur from a decline in service income from abroad. Service income from abroad may decline due to bankruptcy, confiscation or nationalisation etc.

3. Change in Demand – It arises from a change in foreign demand for exports.

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