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Democracy and Trade Balance: A Vector Autoregressive Analysis


  • Khan, Zakir Saadullah

    (Associate Professor, Department of Economics, Comilla University, Comilla, Bangladesh)

  • Hossain, M Ismail

    (Professor, Department of Economics, Jahangirnagar University, Savar, Dhaka.)


Democracy influences demand and supply pattern and the course of openness in international trade. Democratic governments promote market institutions which enhance trade. Demo cratic developing countries receive more foreign official resources and tr ade preferences which have impact on trade balance. This paper shows the empirical relationship between democracy and trade balance incorpora ting democracy index in the standard trade balance model. Using time-series data of Bangladesh and applying Vector Autoregressive technique, the study find a single cointegrating equation showing long-run stable relationship between trade balance and the explanatory variables. The study also finds convergence of short-run dynamics towards long-run equilibrium and concludes that democracy has a positive effect on the trade balance.

Suggested Citation

  • Khan, Zakir Saadullah & Hossain, M Ismail, 2010. "Democracy and Trade Balance: A Vector Autoregressive Analysis," Bangladesh Development Studies, Bangladesh Institute of Development Studies (BIDS), vol. 33(4), pages 23-37, December.
  • Handle: RePEc:ris:badest:0204

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    References listed on IDEAS

    1. Josef Brada & Ali Kutan & Su Zhou, 1997. "The exchange rate and the balance of trade: The Turkish experience," Journal of Development Studies, Taylor & Francis Journals, vol. 33(5), pages 675-692.
    2. 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.
    3. Morrow, James D. & Siverson, Randolph M. & Tabares, Tressa E., 1998. "The Political Determinants of International Trade: The Major Powers, 1907–1990," American Political Science Review, Cambridge University Press, vol. 92(3), pages 649-661, September.
    4. Jessica Decker & Jamus Lim, 2009. "Democracy and trade: an empirical study," Economics of Governance, Springer, vol. 10(2), pages 165-186, April.
    5. Akhtar Akhtar Hossain, 2002. "Exchange Rate Responses to Inflation in Bangladesh," IMF Working Papers 02/166, International Monetary Fund.
    6. Morrow, James D. & Siverson, Randolph M. & Tabares, Tressa E., 1999. "Correction to “The Political Determinants of International Tradeâ€," American Political Science Review, Cambridge University Press, vol. 93(4), pages 931-933, December.
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    Cited by:

    1. Roesmara Donna, Duddy & Widodo, Tri & Adiningsih, Sri, 2018. "Does Democracy Increase Bilateral Trade in MENA Region?," MPRA Paper 86369, University Library of Munich, Germany.

    More about this item


    Democracy; Trade Balance;

    JEL classification:

    • F10 - International Economics - - Trade - - - General


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