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Determinants of the Trade Balance in Industrialized Countries

Author

Listed:
  • Martin Falk

    (WIFO)

Abstract
This paper investigates the determinants of the trade balance using panel data for 32 industrialised and emerging economies for the period 1990–2007. The results, based on fixed effects models and linear mixed models allowing for random slope coefficients, show that the trade balance as a percentage of GDP is significantly positively related to real foreign GDP per capita of the trading partners. Real domestic GDP per capita has a negative effect on the trade balance. A real depreciation of the real effective exchange rate leads to an improvement of the trade balance. However, in countries with a negative trade balance and/or a large positive net foreign direct investment position the trade balance is much less sensitive to movements in the real effective exchange rate.

Suggested Citation

  • Martin Falk, 2008. "Determinants of the Trade Balance in Industrialized Countries," WIFO Studies, WIFO, number 34230, March.
    • Handle: RePEc:wfo:wstudy:34230
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    References listed on IDEAS

    as
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    5. Hassan Shirvani & Barry Wilbratte, 1997. "The Relationship Between The Real Exchange Rate and The Trade Balance: An Empirical Reassessment," International Economic Journal, Taylor & Francis Journals, vol. 11(1), pages 39-50.
    6. Mohsen Bahmani-Oskooee & Artatrana Ratha, 2004. "The J-Curve: a literature review," Applied Economics, Taylor & Francis Journals, vol. 36(13), pages 1377-1398.
    7. Miles, Marc A, 1979. "The Effects of Devaluation on the Trade Balance and the Balance of Payments: Some New Results," Journal of Political Economy, University of Chicago Press, vol. 87(3), pages 600-620, June.
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    Cited by:

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    6. Mejía Méndez, Cinthya & Jáquez Polanco, Jaqueli & Cruz-Rodríguez, Alexis, 2017. "Determinantes del déficit comercial de la República Dominicana [Determinants of the trade deficit of the Dominican Republic]," MPRA Paper 81218, University Library of Munich, Germany.
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