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Trade Balances and the Terms of Trade in G-7 Countries: Penal Cointegration Approach

  • Shigeyuki HAMORI

    ()

This paper empirically analyzes the long-run equilibrium between trade balances and the terms of trade using the nonstationary panel data analysis. Empirical results indicate that trade balances and the terms of trade do not have cointegrating relation for G-7 countries. This implies that the deterioration in the terms of trade will not necessarily improve a country's trade balance in the long-run.

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Article provided by Euro-American Association of Economic Development in its journal Applied Econometrics and International Development.

Volume (Year): 8 (2008)
Issue (Month): 2 ()
Pages: 13-22

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Handle: RePEc:eaa:aeinde:v:8:y:2008:i:2_2
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  1. Haynes, Stephen E & Stone, Joe A, 1982. "Impact of the Terms of Trade on the U.S. Trade Balance: A Reexamination," The Review of Economics and Statistics, MIT Press, vol. 64(4), pages 702-06, November.
  2. Peter Pedroni, 2001. "Purchasing Power Parity Tests In Cointegrated Panels," The Review of Economics and Statistics, MIT Press, vol. 83(4), pages 727-731, November.
  3. Peter C.B. Phillips & Hyungsik R. Moon, 1999. "Nonstationary Panel Data Analysis: An Overview of Some Recent Developments," Cowles Foundation Discussion Papers 1221, Cowles Foundation for Research in Economics, Yale University.
  4. Levin, Andrew & Lin, Chien-Fu & James Chu, Chia-Shang, 2002. "Unit root tests in panel data: asymptotic and finite-sample properties," Journal of Econometrics, Elsevier, vol. 108(1), pages 1-24, May.
  5. Pedroni, Peter, 1999. " Critical Values for Cointegration Tests in Heterogeneous Panels with Multiple Regressors," Oxford Bulletin of Economics and Statistics, Department of Economics, University of Oxford, vol. 61(0), pages 653-70, Special I.
  6. Arize, A. C., 1996. "Cointegration test of a long-run relation between the trade balance and the terms of trade in sixteen countries," The North American Journal of Economics and Finance, Elsevier, vol. 7(2), pages 203-215.
  7. Granger, C. W. J. & Newbold, P., 1974. "Spurious regressions in econometrics," Journal of Econometrics, Elsevier, vol. 2(2), pages 111-120, July.
  8. Goldstein, Morris & Khan, Mohsin S, 1978. "The Supply and Demand for Exports: A Simultaneous Approach," The Review of Economics and Statistics, MIT Press, vol. 60(2), pages 275-86, May.
  9. Houthakker, Hendrik S & Magee, Stephen P, 1969. "Income and Price Elasticities in World Trade," The Review of Economics and Statistics, MIT Press, vol. 51(2), pages 111-25, May.
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