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Optimising and Non-optimising Balance of Trade Models: A Comparative Evidence from India

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  • Tarlok Singh

Abstract

This study estimates and compares the competing optimising and non-optimising balance of trade models using Indian data. The results obtained from the optimising model suggest that the prices relative to user cost of capital and the real wealth lead to a deterioration, while the real capital stock results in an improvement in trade balance. The estimates of conventional non-optimising balance of trade model show the significant effect of domestic income and real exchange rate and the insignificant effect of world income on the balance of trade. The error correction models reinforce the long run estimates and show the significant effect of lagged equilibria on the balance of trade. The non-nested hypothesis tests provide mixed evidence for the preference of one model over the other. The J test suggests that the optimising model outperforms the non-optimising model, while the F test shows that both these models are acceptable in explaining the balance of trade.

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  • Tarlok Singh, 2004. "Optimising and Non-optimising Balance of Trade Models: A Comparative Evidence from India," International Review of Applied Economics, Taylor & Francis Journals, vol. 18(3), pages 349-368.
    • Handle: RePEc:taf:irapec:v:18:y:2004:i:3:p:349-368
    DOI: 10.1080/0269217042000227123
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    References listed on IDEAS

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    1. Nouriel Roubini, 1988. "Current Account and Budget Deficits in an Intertemporal Model of Consumption and Taxation Smoothing. A Solution to the "Feldstein-Horioka Puzzle"?," NBER Working Papers 2773, National Bureau of Economic Research, Inc.
    2. Davidson, Russell & MacKinnon, James G., 1993. "Estimation and Inference in Econometrics," OUP Catalogue, Oxford University Press, number 9780195060119.
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    Cited by:

    1. Moheb Ghali & John M. Krieg & K. Surekha Rao, 2011. "A Bayesian Extension of the J-Test for Non-Nested Hypotheses," Journal of Quantitative Economics, The Indian Econometric Society, vol. 9(1), pages 53-72.
    2. Tarlok Singh, 2007. "Intertemporal Optimizing Models Of Trade And Current Account Balance: A Survey," Journal of Economic Surveys, Wiley Blackwell, vol. 21(1), pages 25-64, February.

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