TITLE:
WAEMU Trade and Current Account Balance Deficit Analysis: A Panel VAR Approach
AUTHORS:
Amadou Maiga Ousseini, Xiaojuan Hu, Badamassi Aboubacar
KEYWORDS:
WAEMU, Trade Balance Deficit, Current Account Deficit, Determinants, Panel VAR
JOURNAL NAME:
Theoretical Economics Letters,
Vol.7 No.4,
June
14,
2017
ABSTRACT: Our study focuses on the analysis of the main
determinants which have an effect on trade and current account balance. We
empirically investigate the effect of money supply (M2), real exchange rate,
income, inflation, investment, and house-hold consumption expenditure on the
trade and current account balance of WAEMU for the period 1980-2013. The
examination of monetary and absorption approaches to the balance of payments
motivate the inclusion of income and money supply (M2). The
conventional approach of elasticity motivates usage of exchange rates. We adopt
the panel VAR method which additionally includes a simulation of variance decompositions
and impulse response functions for transmission of shocks and further
deductions. The study found a negative and statistically significant effect of
money supply, household consumption expenditure on trade Balance. We found also
a significant and positive effect of real exchange rate, income, inflation, and
investment on the trade balance. A significant and negative relationship
between money supply, investment and current account balance was
established. The effect of real exchange rate, income, inflation, and household
consumption expenditure on the current account balance was found to be positive
and significant as well. The significance of exchange rate effect on the trade
balance suggests that the Marshall-Lerner condition hold for WAEMU.