External Debts and Trade Balance: An International Evidence

The paper investigates the relationship between the external debts and the trade balance on a data sample of 190 economies over 1990-2020. In particular, the trade surplus provides the financial resource to repay the external debts. Thus, a greater trade surplus ensures a greater ability to sustain a huger external debts. The qualitative analysis records that there exits mixed results on the external debts and trade balance. And the quantitative analysis illustrates that the external debts are positively correlated with the trade balance. Thus, the evidence confirms that a greater trade surplus can sustain a huger external debts. The empirical results uncover that the trade balance is crucial for a sustained quantity of external debts. Thus, an appropriated policy for the external debts is to stimulate the trade balance, such as with the international trade policy and associated exchange rate policy.