I am seeing a definition for trade surplus as defined as “S > I” because the country saves more than its investment. I cannot however find this definition anywhere else. Could someone please confirm?
That’s not the definition of trade surplus. As the name says, “trade” means exchange of goods and services, so it refers to exports and imports of a country.
( S > I ) implies a trade surplus which is different. I tell why.
We know that GDP = C + I + G + (X - M) from the production approach.
From the expenditure approach GDP = C + S + T
Equal both and get C + I + G + (X - M) = C + S + T … (C cancel each other)
I + G + (X - M) = S + T
Reordering to get a meaningful expression:
(X - M) = (S - I) + (T - G)
The first group is the Trade Balance, the second is Saving and Investment Balance, the last is the Fiscal Budget Status.
Assume for a moment that the government spends the exactly amount of its income from taxes, so (T-G)=0
(X - M) = (S - I)
For a trade surplus to happen , it is necessary that the private national savings must exceed the private investment expenditures in the same amount of the trade surplus assuming the fiscal balance is 0.
X > M = S > I
Hope it is more clear now!
Perfect explanation, thank you very much!
Happy to help 