Democracy and Trade Balance: A Vector Autoregressive Analysis

Zakir Saadullah Khan and M Ismail Hossain
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Zakir Saadullah Khan: Associate Professor, Department of Economics, Comilla University, Comilla, Bangladesh
M Ismail Hossain: Professor, Department of Economics, Jahangirnagar University, Savar, Dhaka.

Bangladesh Development Studies, 2010, vol. 33, issue 4, 23-37

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.

Keywords: Democracy; Trade Balance (search for similar items in EconPapers)
JEL-codes: F10 (search for similar items in EconPapers)
Date: 2010
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Citations: View citations in EconPapers (1)

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