IMPACT OF TERMS OF TRADE AND REAL EXCHANGE RATE ON IRAN'S FOREIGN TRADE DEFICIT

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NAJARZADEH R.; AGHELI L.A.; SHAGHAGHI SHAHRI V.

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Journal: JOURNAL OF SUSTAINABLE GROWTH AND DEVELOPMENT (THE ECONOMIC RESEARCH) Year:2009 | Volume:9 | Issue:2 Page(s): 73-102

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Title

IMPACT OF TERMS OF TRADE AND REAL EXCHANGE RATE ON IRAN'S FOREIGN TRADE DEFICIT

Author(s)

NAJARZADEH R. | AGHELI L.A. | SHAGHAGHI SHAHRI V. | Issue Writer Certificate

Keywords

FOREIGN TRADE DEFICITQ3

TERMS OF TRADEQ3

REAL EXCHANGE RATEQ2

STRUCTURAL VECTOR ERROR CORRECTION MODEL (VECM)Q3

Abstract

The implementation of appropriate trade policies to curb a countries' trade deficit is among the main policy priorities of policy makers in most countries. The two-way causal relationship between a countries' FOREIGN TRADE DEFICIT and macroeconomic variables such as the relation between the TERMS OF TRADE (TOT) and exchange rate has further complicated the research in this area. Hence, the knowledge of such relationship and an understanding of bidirectional effects clarify and shed light on the proper macroeconomic policies in obtaining equilibrium in the foreign sector of countries. In this article an attempt is made to look into the mechanism of the FOREIGN TRADE DEFICIT in the short run and the long run. A Structural Vector Error Correction Model (VECM) is employed to investigate these relationships using the data over the period 1959-2005.The results indicate that a stable long run relationship exists between the FOREIGN TRADE DEFICIT and TERMS OF TRADE. Moreover, a significant long run relationship exists between REAL EXCHANGE RATE and trade deficit. The findings confirm that the devaluation of the domestic currency is able to improve the trade deficit at a rate of 1.33. The short run results indicate that trade deficit reverts quickly to its equilibrium level. The estimated coefficient is -0.65 and it is significant at the 5 percent level.

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APA: Copy

NAJARZADEH, R., AGHELI, L.A., & SHAGHAGHI SHAHRI, V.. (2009). IMPACT OF TERMS OF TRADE AND REAL EXCHANGE RATE ON IRAN'S FOREIGN TRADE DEFICIT. JOURNAL OF SUSTAINABLE GROWTH AND DEVELOPMENT (THE ECONOMIC RESEARCH), 9(2), 73-102. SID. https://sid.ir/paper/86536/en

Vancouver: Copy

NAJARZADEH R., AGHELI L.A., SHAGHAGHI SHAHRI V.. IMPACT OF TERMS OF TRADE AND REAL EXCHANGE RATE ON IRAN'S FOREIGN TRADE DEFICIT. JOURNAL OF SUSTAINABLE GROWTH AND DEVELOPMENT (THE ECONOMIC RESEARCH)[Internet]. 2009;9(2):73-102. Available from: https://sid.ir/paper/86536/en

IEEE: Copy

R. NAJARZADEH, L.A. AGHELI, and V. SHAGHAGHI SHAHRI, “IMPACT OF TERMS OF TRADE AND REAL EXCHANGE RATE ON IRAN'S FOREIGN TRADE DEFICIT,” JOURNAL OF SUSTAINABLE GROWTH AND DEVELOPMENT (THE ECONOMIC RESEARCH), vol. 9, no. 2, pp. 73–102, 2009, [Online]. Available: https://sid.ir/paper/86536/en

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