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short essays and reports on the economic issues of the day
2008 ■ Number 26

Net Exports’ Recent (and Surprising?) Contribution
to GDP Growth
Silvio Contessi


ross domestic product (GDP) in the United States
increased at an annual rate of 2.8 percent during the
second quarter of 2008. This growth surprised many
professional forecasters, who expected a much lower figure
because of continuing difficulties in the housing sector and
mounting job losses. What accounts for this surprisingly
strong performance? The short answer is contributions from
international trade, but this answer leads to two more questions.
First, how can trade spur growth in the United States when
the trade deficit remains historically large relative to GDP
(currently about 5 percent)? Second, and more importantly,
how likely is it that this growth will persist?
It is important to understand that a country’s GDP is the
total market value of newly produced goods and services in a
given period in that country. GDP can be divided into four
main components: consumption expenditures, private business
and residential investment, government consumption expenditures and investment, and net exports. The net exports component is the difference between the value of exports and the
value of imports; that is, between the value of domestic output
sold to foreign citizens and firms and the value of foreign output purchased by U.S. citizens and firms. Each of these four
components contributes a certain percentage of
the GDP growth rate (see the chart). Quarterly
real GDP growth in the chart (black bar) is the
sum of the percentage growth rates of each of its
components (all other bars). In the second quar2.5
ter, a large increase in exports contributed 1.54
percentage points, and a large drop in imports
contributed 1.39 percentage points; these contri1.5
butions more than accounted for GDP growth
and compensated for the negative impact on
growth of investment (–1.74 percent).1
What explains the surprising strength of net
exports? Net exports depend positively on foreign
demand, but negatively on domestic demand. In
the past few months, the U.S. economy has expe–2
rienced sluggish growth compared with the
major trading partners. Thus, the U.S. demand

for foreign-produced goods and services stalled, while the
demand for U.S.-produced goods and services remained
strong. An additional boost to net exports likely came from
the depreciation of the dollar against the currencies of major
U.S. trading partners in the first half of the year. The net effect
has been a significant unexpected export boom during which
the trade balance has behaved as a countercyclical variable,
in a fashion similar to episodes of sluggish growth.
Answering the second question involves a look at history.
So, can we expect this contribution to last? The forecasts of
lower world GDP growth as a result of recent financial turmoil
and U.S. dollar appreciation over the past few weeks might
further curb net exports growth. History also suggests that
large contributions of net exports are rare events in the United
States.2 However, if the demand for U.S. products from abroad
weathers the current financial turbulence, the net export component of GDP might continue to be significant. ■
1 The contraction of imports contributes positively to GDP growth because imports
are subtracted from domestic consumption and investment to account for the fact
that these goods and services are consumed but not produced in the United States.

The last such instance was in the second and third quarters of 1980, when the
contributions of net exports to GDP growth were +4.1 and +3 percent.

Government Expenditures
Real GDP


Views expressed do not necessarily reflect official positions of the Federal Reserve System.