Trade Balance Analysis in Zimbabwe: Import and Export Examination Using Vector Auto-Regression Model

Bonga, Wellington G. (2018): Trade Balance Analysis in Zimbabwe: Import and Export Examination Using Vector Auto-Regression Model.

Abstract

Zimbabwe, just like many other developing nations have failed to register a positive trade balance for the past decade. Zimbabwe, is then labelled a net-importer or a permanent net-importer, since imports have always been greater than exports. Despite differences in value of imports and exports, quality is also essential to determine the country’s development path. The trade balance is affected by both international and domestic events. Chief exports for Zimbabwe remains primary products which are unprocessed, while the country imports finished products which have been value-added. The study seeks to analyse the trade balance over the years 1980 to 2017, paying particular attention to the periodic trends. The study also explore the relationship between the trade balance components, being imports and exports. The study employed a trend analysis and a statistical analysis to attain its study objectives. The study noted a general rise in both exports and imports, however imports significantly above imports for the entire study period, whether for merchandise or non-merchandise. ADF unit root tests were applied to time series data and variables were found to be integrated of order one. Imports have been found to Granger cause exports while exports Granger cause imports as well. Johansen Cointegration test shows that exports and imports are cointegrated, however using the VAR model, the error correction term was insignificant, discarding the existence of a longrun relationship. Exports levels are affected by its past values and also past values of imports significantly. Imports are also affected by historical exports significantly. Improvement in export policy is critical, value addition to exports, market fetching through regionalism and import substitution is essential to manage the trade balance.

• Item Type: MPRA Paper
• Language: English
• Keywords: Trade balance, Trade deficit, Trade surplus, Exports, Imports, Cointegration, Vector Auto-Regression, Granger Causality, Zimbabwe
• Subjects: C - Mathematical and Quantitative Methods > C0 - General > C01 - Econometrics; C - Mathematical and Quantitative Methods > C3 - Multiple or Simultaneous Equation Models ; Multiple Variables > C32 - Time-Series Models ; Dynamic Quantile Regressions ; Dynamic Treatment Effect Models ; Diffusion Processes ; State Space Models; F - International Economics > F1 - Trade > F13 - Trade Policy ; International Trade Organizations; F - International Economics > F1 - Trade > F15 - Economic Integration; F - International Economics > F1 - Trade > F18 - Trade and Environment; F - International Economics > F4 - Macroeconomic Aspects of International Trade and Finance > F42 - International Policy Coordination and Transmission; F - International Economics > F4 - Macroeconomic Aspects of International Trade and Finance > F43 - Economic Growth of Open Economies; F - International Economics > F6 - Economic Impacts of Globalization > F62 - Macroeconomic Impacts

References

[1]. Al-Khulaifi Abdulla S. (2013). “Exports and Imports in Qatar: Evidence from Cointegration and Error Correction Model.” Asian Economic and Financial Review, 3(9):1122-1133.

[2]. Babatunde M.A (2014). “Are Exports and Imports Cointegrated? Evidence from Nigeria.” Journal of International and Global Economic Studies, 7(2), 45-67.

[3]. Bahadori Mohammad Taha and Liu Yan (2013). “An Examination of Practical Granger Causality Inference.” Proceedings of the 2013 SIAM International Conference on Data Mining.

[4]. Bonga W.G (2014). “International Trade: An Analysis of Hinderances and Survival Strategies by SMEs.” Social Science Research Network, http://dx.doi.org/10.2139/ssrn.2466031

[5]. Bonga W.G (2017). “Challenges Faced by SMEs on Exportation and Possible Strategies”. Social Science Research Network. Revised version, https://ssrn.com/abstract=2399878

[6]. Bonga W.G, Shenje T.E, and Sithole R. (2015). “Export Sector Contribution to Economic Growth in Zimbabwe: A Causality Analysis.” The International Journal of Business & Management, Vol. 3, Issue 10, pp. 452-464.

[7]. Falk, Martin. (2008). “Determinants of the Trade Balance in Industrialized Countries.” FIW Research Report N° 013.

[8]. Foresti Pasquale (2007). “Testing for Granger causality between stock prices and economic growth.” MPRA Paper No. 2962, http://mpra.ub.uni-muenchen.de/2962/

[9]. IMF Country Report No. 17/196, Zimbabwe, 2017.

[10]. Lin Jin-Lung (2008) Notes on Testing Causality. Institute of Economics, Academia Sinica, Department of Economics, National Chengchi University.

[11]. OEC (2018). “Zimbabwe.” The Observatory of Economic Complexity. https://atlas.media.mit.edu/en/profile/country/zwe/

[12]. Perron Pierre (2005). “Dealing with Structural Breaks,” Prepared for the Palgrave Handbook of Econometrics, Vol. 1: Econometric Theory.

[13]. Romero Jessie (2012). “Balance of Trade.” Region Focus, Second / Third Quarter, Jargon Alert.

[14]. Shigeyuki Hamori (2008). “Trade Balances and the Terms of Trade in G-7 Countries: Penal Cointegration Approach.” Applied Econometrics and International Development, Vol. 8(2), pp. 13-22.

[15]. Siyakiya Puruweti (2016). “An Econometric Analysis of Zimbabwe’s Export Competitiveness.” Maghreb Review of Economics and Management, Vol 03 - N° 02, pp. 6-19.

[16]. Sorensen Bent E (2005). “Granger Causality.” ECONOMICS 7395.

[17]. Statista (2018). “Trade balance of Zimbabwe 2017.” The Statistics Portal. https://www.statista.com/statistics/455354/trade-balance-of-zimbabwe/

[18]. Van den Berg M, Cremers D, Lemmers O, and Van Marrewijk C, (2018). “Does importing foster export performance? An overview of existing literature.” CBS Heerlen, EBH-KIO.

[19]. Yuen-Ling Ng, Wai-Mun Har and Geoi-Mei Tan (2008). “Real Exchange Rate and Trade Balance Relationship: An Empirical Study on Malaysia.” International Journal of Business and Management, Vol. 3, No. 8, pp. 130-137.