Exports play an important role in economy, influencing the level of economic growth, employment and the balance of payments. If exports increase at a faster pace as compared to imports, nothing can stop an economy from being a developed one. On the other hand, the instability in exports can adversely affects the process of economic development.
Lower exports mean low foreign exchange and lower foreign exchange in turn means a small purchasing capacity of a nation in the international market.
Fluctuations in export earnings introduce uncertainties in an economy. These uncertainties influence economic behavior by adversely affecting the level and efficiency of investment and in turn have a negative effect on growth.
Businesses generally strive to make profits and the bigger the profits the better. In many instances, exports can contribute to increased profits because the average orders from international customers are often larger than they are from domestic buyers, as importers generally order by the container instead of by the pallet (thereby affecting both total sales and total profits). Some products – especially those that are unique or very innovative in nature may also command greater profit margins abroad than in the local market.
Exports help to put idle production capacity to work. This is generally achieved the more efficient utilization of the existing factory, machines and staff. What is more, because you are now selling more products without increasing total costs to the same extent, this has the effect of lowering your unit costs which represents a more productive overall operation. Lower unit costs make a product more competitive in the local marketplace as well as in foreign markets, and/or can contribute to the firm’s overall profitability.
The concept of trade stability or instability may be based either on a country’s aggregate trade in comparison with the cost of the world or on a binary country pair comparison. Such binary pairs may be large depending upon the number of trading allies.
Export instabilities have been claimed to affect economic growth both positively and negatively. Fluctuation in exports earnings introduces uncertainties in the economy. Supply side policies could include both interventionist supply side policies (such as education and training) and market oriented supply side policies (e.g. reducing the power of trades unions, reducing government regulation). This can enable increased productivity.
Private sector innovation. There is only so much the government can do to promote private sector productivity. Competitiveness depends on new technology and management techniques as much as any government policies
With increased export production and sales, you can achieve economies of scale and spread costs over a larger volume of revenue. You reduce average unit costs and increase overall profitability and competitiveness. Long-term exports may enable a company to expand its production facilities in order to achieve an economic level of production.