Final answer:
Development of a more efficient transport system can lead to reduced production costs and higher exports, but it could also result in increased imports due to higher domestic income. The overall effect on a country's trade balance would depend on a range of factors, including economic conditions of trade partners and the domestic income effect.
Step-by-step explanation:
If a country develops a new method of transport making transportation for all industries more efficient, there would be several possible impacts on its trade. Firstly, the improved efficiency could lead to reduced production costs, potentially allowing the country to export more due to competitive pricing. However, if this increased efficiency translates into higher income for the country, then as per the income effect, the country could import more because of an increased demand for goods and services due to higher domestic income levels.
Moreover, improved transport efficiency could enhance the country's growth rates, influence relative prices, and shift export and import demand. This shift depends on various factors, including the economic conditions of the trading partner countries and domestic economic growth. For example, if partner countries are experiencing economic growth, they might demand more exports. Conversely, if they are in a recession, they might reduce their import demand, affecting the exporting country's trade balance.
Additionally, changes due to trade policies, like the removal of tariffs or the implementation of import quotas, can profoundly affect the level of imports and exports. If the country's consumers have more disposable income due to the transport innovation, this could result in an increase in imports, as seen historically with the strong correlation between a nation's income level and its import levels.
Overall, the impact on exports and imports is not easy to predict and would likely depend on a combination of factors, including the country's relative production cost advantages, changes in income, growth rates, and the economic conditions of trade partners. Thus, while the country might export more due to competitive costs, it could also import more due to increased domestic income, making it uncertain if the trade balance would shift significantly in either direction.