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Income Terms of Trade and Trade Balance: The Long Run Evidence from Bangladesh

Author

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  • ISLAM, FARIDUL

    (Professor and Chair, Department of Economics, Morgan State University, Baltimore, MD, USA.)

  • TAHIR , MOHAMMAD IQBAL

    (The University of Faisalabad, Faisalabad, Pakistan and Griffith University, Brisbane, Australia.)

  • SHAHBAZ, MUHAMMAD

    (COMSATS Institute of Information Technology, Lahore , Pakistan.)

Abstract

The paper uses the autoregressive distributed lag approach to cointegration to test the Harberger-Laursen-Metzler (HLM) effect in the context of Bangladesh. The HLM effect predicts that a rise in the terms of trade from an exogenous shock to a small open economy will lead to an improvement in the country’s trade balance. The study findings confirm the existence of a long run relationship in the case of Bangladesh. The Granger test suggests unidirectional causality from income terms of trade to trade balance. The results are found consistent with the theoretical predictions.

Suggested Citation

  • Islam, Faridul & Tahir , Mohammad Iqbal & Shahbaz, Muhammad, 2013. "Income Terms of Trade and Trade Balance: The Long Run Evidence from Bangladesh," Bangladesh Development Studies, Bangladesh Institute of Development Studies (BIDS), vol. 36(2), pages 109-122, June.
    • Handle: RePEc:ris:badest:0557
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    Cited by:

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    2. Mubasher Iqbal & Rukshana Kalim & Noman Arshed, 2019. "Domestic and Foreign Incomes and Trade Balance - A Case of South Asian Economies," Asian Development Policy Review, Asian Economic and Social Society, vol. 7(4), pages 355-368, December.
    3. Talat Afza & Khalid Ahmed & Muhammad Shahbaz, 2016. "Does Harberger–Laursen–Metzler (HLM) Exist in Pakistan? Cointegration, Causality and Forecast Error Variance Decomposition Tests," Global Business Review, International Management Institute, vol. 17(4), pages 759-778, August.
    4. Rizwana YASMEEN* & Muhammad HAFEEZ** & Ihtsham ul Haq PADDA***, 2018. "TRADE BALANCE AND TERMS OF TRADE RELATIONSHIP: Evidence from Pakistan," Pakistan Journal of Applied Economics, Applied Economics Research Centre, vol. 28(2), pages 173-188.

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    More about this item

    Keywords

    Income Terms of Trade; Trade Balance; ARDL; HLM Effect; Bangladesh;
    All these keywords.

    JEL classification:

    • F11 - International Economics - - Trade - - - Neoclassical Models of Trade
    • F32 - International Economics - - International Finance - - - Current Account Adjustment; Short-term Capital Movements
    • F40 - International Economics - - Macroeconomic Aspects of International Trade and Finance - - - General

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