ABSTRACT:
Trade balance, exchange rate, domestic income and foreign income are among the factors which determine a country’s economic growth. In this study, an empirical analysis was conducted to investigate the determinants of the Malaysian bilateral trade balance with USA in the short- and long-runs by using the Autoregressive Distributed Lag (ARDL) framework. This study used quarterly data from 1997 to 2016. The study found that domestic income, foreign income and real effective exchange rate affect the bilateral trade balance in both the short- and long-terms. This shows that these variables are strongly significant in determining the trade balance. The study concluded that encouraging exports and controlling imports are deemed important. This is also important to increase the inflow of money to contribute to a positive trade balance in the long-term so that we can boost the domestic economy.
Keywords: trade balance, economic growth, real effective exchange rate, USA, ARDL
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