Analysis of the Effect of Trade Balance on Manufacturing: Evidence from the United States

Authors

  • Assande Desire Adom

Abstract

The relationship between a country’s manufacturing industry and its net trade carries a great deal of complexity and proves critical as the economy matures. Moreover, debates in public arenas oftentimes do not contribute in alleviating confusions or providing viable answers. This study attempts to empirically explore the nature of this relationship for the United States. Using a set of structural vector auto-regressions, it reveals that the development of the manufacturing sector is inhibited in the long run by worsening trade balances. However, this relationship does not appear significant. The implication of these findings weakens arguments singling out negative trade balances as driving forces behind the perceived woes of the US manufacturing sector.

Keywords: Manufacturing, Trade balance, United States, Co integration, Vector auto-regression.

References

Baily MN, BP Bosworth (2014) US Manufacturing: Understanding Its Past and Its Potential Future. Journal of Economic Perspectives, 28(1):3-26.

Evans WT, O’Neil, BF and WJ Stevenson (2010) Revitalizing U.S. Manufacturing: The Role of Tax Policy. The CPA Journal, June: 50-53. New York State Society of CPAs.

Euromoney Institutional Investor PLC (2014) The tide turns for American manufacturing. Trade Finance: The global magazine for export and commodity finance, 17(5). London: Euromoney Institutional Investor.

Levinson M (2012) Manufacturing the future. Why Reindustrialization Is the Road to Recovery. New Labor Forum 21(3): 10-15. Murphy Institute, City University of New York.

Dauth Wolfgang, Sebastian Findeisen, Jens Suedekum (2017) Trade and Manufacturing Jobs in Germany. American Economic Review, 107 (5): 337-42. DOI: 10.1257/aer.p20171025.

Cravino Javier, Sebastian Sotelo (2019) Trade-Induced Structural Change and the Skill Premium. American Economic Journal: Macroeconomics, 11(3): 289-326.

Chaudhuri S (2013) Manufacturing Trade Deficit and Industrial Policy in India. Economic and Political Weekly, 48(8): 41-50.

Wong, Colin Koh-King; Liew, Venus Khim-Sen, Arip, Mohammad Affendy (2017) The Impact of ASEAN Free Trade Area on Intra-Asean Manufacturing Trade. International Journal of Business and Society, 18(3): 633-643.

Gujarati DN, DC Porter (2009) Basic Econometrics, 5th Edn. The McGraw Hill Companies, Inc., New York, 755-759.

Johansen S (1991) Estimation and Hypothesis Testing of Cointegration Vectors in Gaussian Vector Autoregressive Models. Econometrica, 59(6): 1551-1580.

Goldberg LS, K Crockett (1998) The Dollar and U.S. Manufacturing. Current Issues in Economics and Finance, 4(12):1-6. Federal Reserve Bank of New York.

How to Cite

Adom, A. D. “Analysis of the Effect of Trade Balance on Manufacturing: Evidence from the United States”. International Journal of Advances in Management and Economics, May 2020, pp. 49-56, https://www.managementjournal.info/index.php/IJAME/article/view/664.