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Income terms of trade and trade balance: the long run evidence from Bangladesh

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  • Faridul, Islam
  • Mohammad, Iqbal Tahir
  • Muhammad, Shahbaz

Abstract

The paper implements the Autoregressive Distributed Lag (ARDL) approach to cointegration to test the Harberger-Laursen-Metzler (HLM) effect in the context of Bangladesh. The HLM effect predicts that a rise in terms of trade from an exogenous shock to a small open economy will lead to an improvement in that country’s trade balance. Our findings confirm a long run relationship. The Granger causality test reports unidirectional causality from income terms of trade to trade balance. Results are consistent with the theoretical predictions.

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File URL: http://mpra.ub.uni-muenchen.de/38384/
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Bibliographic Info

Paper provided by University Library of Munich, Germany in its series MPRA Paper with number 38384.

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Date of creation: 07 Apr 2012
Date of revision: 24 Apr 2012
Handle: RePEc:pra:mprapa:38384

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Keywords: Income terms of trade; cointegration; ARDL;

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