Duncan’s Economic Blog

Sources of Growth – Cutting Imports?

Posted in Uncategorized by duncanseconomicblog on September 7, 2010

A quick, possibly heretical, thought.

One of the biggest questions in economic policy at the moment is that of, where will the growth come from?

I’ve outlined before why I think the government in overly optimistic on the UK’s prospects – but I’m left wondering why everyone seems to be ignoring one possible source of growth.

GDP is a fairly simple equation:

GDP = Consumption + Investment + Government Spending + Net Trade (Exports – Imports)

Whilst most observers accept that consumption growth is unlikely (households are repairing their balance sheets and unlikely to spend as much as previously), many on the right hope for a boom in business investment and exports to take up the slack as government spending is cut back and the consumer is taxed. Meanwhile many on the left argue for an increase in government spending, to boost growth until the private sector recovers.

To my surprise, no one seems to be advocating cutting imports – or even slowing the growth of imports as a potential strategy.

Given the growth of imports as a percentage of UK GDP over the past five and a half decades (see below), this is surprising.

Falling imports, or slower growth in imports, boosts Net Trade (and hence GDP) just as much as rising exports do.

I’m not suggesting this (yet), but I am  curious as to why it doesn’t come up more often in debate.