Are Imports and Exports Cointegrated? An International Comparison

Abstract

In this paper we use the Johansen and Juselius cointegration technique to examine the long-run convergence between imports and exports for a number of industrialized countries. The results indicate that there exists a long-run steady-state relationship between imports and exports for most countries in the sample. The policy implications of our findings are that the countries are not in violation of their international budget constraints and, more importantly, there is no productivity gap between the domestic economy and the rest of the world, implying a lack of permanent technological shocks to the domestic economy.

Long-Run Relationship between Exports and Imports of Pakistan

“…The statistical results of the study also lead to the conclusion that Pakistan is not violating its budget constraint. These findings are align with Bahmani-Oskooee and Rhee (1997), Wu and Zhang (1998), Arize (2002), Baharumshah et al (2003), Choong et al (2004), Emmy et al (2009), Irandoust andEricsson (2004), Uddin (2009), andMukhtar andRasheed (2010) but differ from TangTang (2006) , Konya and Singh (2008), Jalil (2008), Dumitriu et al (2009), andHye andSiddiqui (2010). Furthermore, the coefficient of long run relationship between exports and imports estimated by ARDL Model is 0.85196 that indicates that exports do not respond equally to imports, which happens to be one of the major causes of trade deficit in developing countries like Pakistan.…”

“…To investigate long run relationship between exports and imports of developed countries, such as France, Germany, Italy, Sweden, UK and USA Irandoust and Ericsson (2004) conducted an empirical study. They concluded from the statistical results that exports and imports of Germany, Sweden and USA are co-integrated but not in case of UK.…”

“…According to Irandoust and Ericsson (2004), co-integrating relationship between exports and imports can explain that a country is not in violation of her international budget constraints and also that trade imbalances are short term phenomenon and macroeconomic policies have been effective to bring exports and imports into equilibrium in the long-run. They also concluded that absence of co-integration between exports and imports indicates major policy problems for the economy and the existence of productivity gap.…”

“…So, investigation of long run relationship between exports and imports is equally important for both the developed and developing countries. Irandoust and Ericsson (2004) further found that the economy of Bangladesh is not violating its international budget constraints and its trade imbalances are a short-run phenomenon which are not sustainable in the long run. Therefore, the macroeconomic policies of Bangladesh have been effective in bringing total exports and imports into a long-run equilibrium.…”

Global imbalances and the intertemporal external budget constraint: A multicointegration approach

“…2 The second empirical strategy has been based on a multivariate approach focusing on the long-run properties of the ‡ows of exports and imports. Some examples are Husted (1992), Fountas and Wu (1999), Irandoust and Sjoo (2000), Irandoust and Ericsson (2004), Arize (2002), Narayan and Narayan (2005), Herzer and Nowak-Lehmann (2006), and Hamori A common feature of the previously reported empirical literature is that it does not tackle properly the complex relationships between the external de…cits (or the variables involved in this imbalance) and the evolution of the stock of external debt. Generally, the analysis of the dynamic responses of the current account to di¤erent shocks focus on the short run as in Glick and Rogo¤ (1995) and Milessi-Ferreti and Razin (1996) or they are estimated through simple cointegration techniques that are unable to capture the stock- ‡ow mechanism shared by these variables.…”