Trade Capacity

This study addresses the short-and long-term effects of infrastructure on exports and trade deficits in certain South Asian countries between 1990-2017. As you read, think about other countries where limited infrastructure capacity has affected their ability to develop.

Abstract

This study investigates the short- and long-run impact of infrastructure on export and trade deficit in selected South Asian countries during 1990–2017 by using Pooled Mean Group (PMG) estimator and cointegration techniques like Pedroni and Kao test. The empirical results of the PMG approach confirmed the existence of a significant long-run impact of aggregate and sub-indices of infrastructure (i.e., transport, telecommunication, energy and financial sector) on export and trade deficit. The findings suggested that infrastructure positively promotes exports while negatively affecting trade deficit. The relationship between infrastructure and export is a worthy bulletin for South Asian economies to encourage the quantity of exports and catch-up on established economies. The control variables of exchange rate, human capital, per capita GDP and institutional quality enhance exports and retard trade deficit significantly in the long run. Furthermore, the Pedroni and Kao test indicates strong evidence of cointegration in selected variables. Fully modified ordinary least square (FMOLS) and dynamic ordinary least square (DOLS) support robust and consistent results to the main model of this study. Furthermore, the study recommended that in the long run aggregate and sub-indices of infrastructure promote exports and decrease trade deficit in selected South Asian economies.


Source: Faheem Ur Rehman, Abul Ala Noman, and Yibing Ding, https://journalofeconomicstructures.springeropen.com/articles/10.1186/s40008-020-0183-x
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