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Pooled Mean Group Estimation of the Bilateral Trade Balance Equation: USA vis-a-vis her Trading Partners

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  • Gour Gobinda Goswami
  • Sadaquat Junayed

Abstract

The autoregressive distributed lag model (ARDL), even though it distinguishes between the short run and the long run effect, allows both the intercepts and slopes to vary across countries. Static panel estimations, such as fixed-effects estimation (FE), cannot distinguish between the short run and the long run behavior. To address the issue of short run heterogeneity as well as long run homogeneity of the estimated coefficients in a panel framework, the pooled mean group (PMG) estimator has gained popularity since 1999. In this paper, we estimate the bilateral trade balance model for the USA vis-a-vis her 19 OECD trading partners for the period 1973q1-2004q4 using the PMG estimator and find that PMG performs better than ARDL, FE, and MG estimators and provides significant and theoretically consistent results.

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Bibliographic Info

Article provided by Taylor and Francis Journals in its journal International Review of Applied Economics.

Volume (Year): 20 (2006)
Issue (Month): 4 ()
Pages: 515-526

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Handle: RePEc:taf:irapec:v:20:y:2006:i:4:p:515-526

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Related research

Keywords: Bilateral trade balance equation; pooled mean group estimator; panel data;

References

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  1. Backus, David K & Kehoe, Patrick J & Kydland, Finn E, 1994. "Dynamics of the Trade Balance and the Terms of Trade: The J-Curve?," American Economic Review, American Economic Association, vol. 84(1), pages 84-103, March.
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  3. Mohsen Bahmani-Oskooee & Artatrana Ratha, 2007. "The S-curve Dynamics of US Bilateral Trade," Review of International Economics, Wiley Blackwell, vol. 15(2), pages 430-439, 05.
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  5. Bassanini, Andrea & Scarpetta, Stefano, 2002. "Does human capital matter for growth in OECD countries? A pooled mean-group approach," Economics Letters, Elsevier, vol. 74(3), pages 399-405, February.
  6. Karl Friedrich Habermeier & Mario Mesquita, 1999. "Long-Run Exchange Rate Dynamics - A Panel Data Study," IMF Working Papers 99/50, International Monetary Fund.
  7. Bahmani-Oskooee, Mohsen, 1985. "Devaluation and the J-Curve: Some Evidence from LDCs," The Review of Economics and Statistics, MIT Press, vol. 67(3), pages 500-504, August.
  8. Bahmani-Oskooee, Mohsen, 1991. "Is there a long-run relation between the trade balance and the real effective exchange rate of LDCs?," Economics Letters, Elsevier, vol. 36(4), pages 403-407, August.
  9. Bahmani-Oskooee, Mohsen, 1986. "Determinants of international trade flows : The Case of Developing Countries," Journal of Development Economics, Elsevier, vol. 20(1), pages 107-123.
  10. Bahmani-Oskooee, Mohsen & Malixi, Margaret, 1992. "More evidence on the J curve from LDCs," Journal of Policy Modeling, Elsevier, vol. 14(5), pages 641-653, October.
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