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Determinants of United States' trade balance with Australia

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  • Stephen Kyereme

Abstract

This study explores the determinants of the USA's trade balance (NE) with Australia, and tests for long-run relationships. Regression results suggest the most important determinant of NE is the price ratio (USA relative to Australia), followed by the lending rate ratio, GDP ratio, money supply ratio, and the real exchange rate, which together explain 93% of the variation in NE. F-tests suggest NE responds to rising and falling exchange rate regimes symmetrically. Johansen's cointegration test suggests a significant (at 1%) long run relationship between NE and its determinants. Based on Engle-Granger, import share (IS) and output growth (Q) are cointegrated at 10% if Q shocks precede IS shocks, suggesting a weak long run relationship between them. There is a positive long run relationship between NE and the exchange rate (ER) at 5%, if ER shocks precede NE shocks. Results based on the error correction model suggest a positive relationship between expected ER and NE, and reinforce the cointegration results. The estimated NE regression model may be used to monitor and predict NE, given relevant values (predicted or predetermined) of its determinants.

Suggested Citation

  • Stephen Kyereme, 2002. "Determinants of United States' trade balance with Australia," Applied Economics, Taylor & Francis Journals, vol. 34(10), pages 1241-1250.
    • Handle: RePEc:taf:applec:v:34:y:2002:i:10:p:1241-1250
    DOI: 10.1080/0003684011-0094437
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    Cited by:

    1. Mohsen Bahmani-Oskooee & Ali Kutan, 2009. "The J-curve in the emerging economies of Eastern Europe," Applied Economics, Taylor & Francis Journals, vol. 41(20), pages 2523-2532.
    2. Mohsen Bahmani-Oskooee & Hanafiah Harvey, 2010. "The J-curve: Malaysia versus her major trading partners," Applied Economics, Taylor & Francis Journals, vol. 42(9), pages 1067-1076.
    3. Mohsen Bahmani--Oskooee & Scott W. Hegerty & Jia Xu, 2013. "Exchange--rate volatility and US--Hong Kong industry trade: is there evidence of a 'third country' effect?," Applied Economics, Taylor & Francis Journals, vol. 45(18), pages 2629-2651, June.
    4. Mohsen Bahmani-Oskooee & Rajarshi Mitra, 2010. "How sensitive is commodity trade flows between US and India to currency depreciation?," Applied Economics, Taylor & Francis Journals, vol. 42(3), pages 267-277.
    5. Mohsen Bahmani-Oskooee & Huseyin Karamelikli, 2021. "Asymmetric J-curve: evidence from UK-German commodity trade," Empirica, Springer;Austrian Institute for Economic Research;Austrian Economic Association, vol. 48(4), pages 1029-1081, November.
    6. Mohsen Bahmani-Oskooee & Yongqing Wang, 2008. "The J-curve: evidence from commodity trade between US and China," Applied Economics, Taylor & Francis Journals, vol. 40(21), pages 2735-2747.
    7. Mohsen Bahmani-Oskooee & Hanafiah Harvey, 2006. "How sensitive are Malaysia's bilateral trade flows to depreciation?," Applied Economics, Taylor & Francis Journals, vol. 38(11), pages 1279-1286.
    8. Cortes, Maria, 2007. "Examining Patterns of Bilateral Trade between Australia and Colombia by Using Cointegration Analysis and Error-Correction Models," Economics Working Papers wp07-20, School of Economics, University of Wollongong, NSW, Australia.

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