TERMS OF TRADE AND TRADE BALANCE IN KOREA, HONG KONG AND SINGAPORE

Abstract

This study examines the impact of terms of trade on trade balance in Korea, Hong Kong, and Singapore. Generally, the results of the cointegration tests show that there is a long-run relationship between terms of trade and trade balance. More specifically, an increase in terms of trade will lead to a decrease in trade balance. For Hong Kong, trade balance is found to Granger cause terms of trade and there is bilateral Granger causality between terms of trade volatility and trade balance. Terms of trade has some predictive power on trade balance.