Taiwan's exports and trade imbalance against US and Japan: an empirical analysis

Abstract

The persistence of the bilateral trade surplus between Taiwan and the USA and the bilateral trade deficit between Taiwan and Japan despite the significant appreciation or depreciation of the NT dollar during the early 1980s to the mid-1990s renewed interest to seek explanations for these phenomena. To assess the above proposition, a polynomial distributed lag (PDL) method is imposed on the impact of changes in the real exchange rate on the bilateral trade structure particularly export demand and trade imbalance between Taiwan, the USA and Japan from 1981 to 1998. The empirical findings show that: (1) the real income factors have important effects on the real exports in both cases; (2) the real exchange rates and the real imports are not major determinants of the export demand from Taiwan to the USA but they do play an important role on the real exports from Taiwan to Japan; (3) the real exchange rate has significant effect on the real trade surplus with the USA and on trade deficit with Japan but the real income has not.