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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.

Suggested Citation

  • Faridul, Islam & Mohammad, Iqbal Tahir & Muhammad, Shahbaz, 2012. "Income terms of trade and trade balance: the long run evidence from Bangladesh," MPRA Paper 38384, University Library of Munich, Germany, revised 24 Apr 2012.
    • Handle: RePEc:pra:mprapa:38384
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    References listed on IDEAS

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    Keywords

    Income terms of trade; cointegration; ARDL;

    JEL classification:

    • F1 - International Economics - - Trade

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