Income terms of trade and trade balance: the long run evidence from Bangladesh

Faridul Islam (), Iqbal Tahir Mohammad and Muhammad Shahbaz

MPRA Paper from University Library of Munich, Germany

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.

Keywords: Income terms of trade; cointegration; ARDL (search for similar items in EconPapers)
JEL-codes: F1 (search for similar items in EconPapers)
Date: 2012-04-07, Revised 2012-04-24
New Economics Papers: this item is included in nep-int
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Related works:
Journal Article: Income Terms of Trade and Trade Balance: The Long Run Evidence from Bangladesh (2013)
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Persistent link: https://EconPapers.repec.org/RePEc:pra:mprapa:38384

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