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Democracy and Trade Balance: A Vector Autoregressive Analysis

Author

Listed:
  • Khan, Zakir Saadullah

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

  • Hossain, M Ismail

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

Abstract

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

    as
    1. Jessica Decker & Jamus Lim, 2009. "Democracy and trade: an empirical study," Economics of Governance, Springer, vol. 10(2), pages 165-186, April.
    2. 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.
    3. Rose, Andrew K., 1991. "The role of exchange rates in a popular model of international trade : Does the 'Marshall-Lerner' condition hold?," Journal of International Economics, Elsevier, vol. 30(3-4), pages 301-316, May.
    4. 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.
    5. Mr. Akhtar Akhtar Hossain, 2002. "Exchange Rate Responses to Inflation in Bangladesh," IMF Working Papers 2002/166, International Monetary Fund.
    6. 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.
    7. Morrow, James D. & Siverson, Randolph M. & Tabares, Tressa E., 1999. "Correction to “The Political Determinants of International Trade”," American Political Science Review, Cambridge University Press, vol. 93(4), pages 931-933, December.
    8. Bliss, Christopher, 1989. "Trade and development," Handbook of Development Economics, in: Hollis Chenery & T.N. Srinivasan (ed.), Handbook of Development Economics, edition 1, volume 2, chapter 23, pages 1187-1240, Elsevier.
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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.

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    More about this item

    Keywords

    Democracy; Trade Balance;

    JEL classification:

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

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