Open AccessForeign Demand, Investment And Trade Balance: The Case Of Australia
Author(s) -
Jean-François Hoarau,
Alain Nurbel,
Nelson Latchimy
Publication year - 2011
Publication title -
journal of business and economics research
Language(s) - English
Resource type - Journals
eISSN - 2157-8893
pISSN - 1542-4448
DOI - 10.19030/jber.v1i4.2998
Subject(s) - economics , balance of trade , balance (ability) , rest (music) , capital good , order (exchange) , investment (military) , balance of payments , capital (architecture) , international economics , foreign direct investment , current account , monetary economics , international trade , macroeconomics , economy , goods and services , politics , finance , medicine , cardiology , archaeology , political science , law , physical medicine and rehabilitation , history , exchange rate
This paper aims at analysing the relation between real trade balance and foreign demand in the case of a small opened economy, which highly depends upon the rest of the world for productive capital. Theoretical analysis allows us to bring forth a kind of “J-curve” effect. Indeed, when foreign demand for domestic goods increases, the country is to import in a first time in order to improve its productive capacities, resulting in worsening trade balance. However, in a second time, once the cumulated capital inventory became sufficient, the trade balance improves under the pressure of domestic exports high growth. The empirical analysis based on Australia from 1982 (1) to 2001 (1) supports this theory. We show there are negative short term and positive long term elasticities.