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Long Run Relationship between Exports and Imports: Further Empirical Evidence from Developing Countries

Academy of Management and Economic Journal

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Title Long Run Relationship between Exports and Imports: Further Empirical Evidence from Developing Countries
 
Creator Nyong, Michael O.
 
Description This study investigated the long-run relationship  between exports and  imports using a sample of 66 developing countries for the period 1960-2014. The study was motivated by the challenge of sustainability of their trade balance particularly in the long-run and therefore whether or not government macroeconomic policies  have been effective in bringing exports and imports into equilibrium relationship.  Given that knowledge of whether or not cointegration  exists between exports and imports is a sine quo non in the design  and evaluation of current and future macroeconomic policies aimed at  achieving sustainability of  the trade balance this study adopted  fractional cointegration approach based on autoregressive fractional integrated moving average (ARFIMA)  method rather than the Johansen cointegration method because of the flexibility and superiority of the former. Our empirical results revealed that only 16 out of the 66 countries in the sample have sustainable trade balance while 50 of them do not indicate sustainability of their trade deficits. This means that most of the countries are likely to default on their trade debts. The policy implications are that for the 16 of them that do not violate their international budget constraint, their  trade imbalances are short-run phenomena.  Macroeconomic policies may have been effective in ensuring long-run equilibrium relationship between exports and imports. However, for the remaining 50 developing countries with unsustainable trade deficits, there is productivity gap between their domestic  economy and the rest of the world and hence that policies must be put in place to stimulate domestic productivity, maintain competitive real exchange rate and promote employment.
 
Publisher Academy of Management and Economic Journal
 
Contributor —
 
Date 2016-03-13
 
Type info:eu-repo/semantics/article
info:eu-repo/semantics/publishedVersion
Peer-reviewed Article
 
Format application/pdf
 
Identifier http://innovativejournal.in/amej/index.php/amej/article/view/2
 
Source Academy of Management and Economic Journal; Vol 1, No 1 (2016)
 
Language eng
 
Relation http://innovativejournal.in/amej/index.php/amej/article/view/2/2
 
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