Real Economy as a Source of Trade Balance Disequilibrium - Basic Approach

Abstract

Real Economy as a Source of Trade Balance Disequilibrium-Basic Approach The aim of this paper is to specify the determinants from the real economy causing long-term disequilibrium in the trade balance. The analysis is carried out for all countries of the world for the period 1980-2016 (according to data availability) using panel and cross-sectional regression. We employ the absorption approach as the basic theoretical model. From the supply side of the economy, the main determinants are: export of primary resources, e.g. oil and gas, geographical factors and institutional quality of the economy. From the demand side of the economy, the trade balance is influenced mainly by the demographic structure of the population and its consumption, saving and investment habits in the context of life cycle hypothesis, marginal propensity to consume and the participation of the government sector in the economy (e.g. health care provision, social security, etc.).