The Analysis of Automatic Adjustment Mechanism of Balance of Payments-Evidence from Manufactured Goods Exporters

Abstract

The balance of payments is the most scientific and complete record of international economic exchanges and transaction flows, and will be affected by interest rates, exchange rates, trade, finance, foreign exchange management and foreign investment. Studies related to balance of payment dominate in those increasingly open and developing economies, particularly for the manufactured goods exporters where manufacturing is the backbone, driver and display of modernization. This paper explores time trend analysis to analyze the automatic adjustment mechanism of balance of payments for manufactured goods exporters based on data from United Nations Conference on Trade and Development. The stability, cointegration, and causality tests are performed followed by multiple regression analysis that corporates one-period lagged and log-formed models. The results are found to be consistent with theoretical analysis except for foreign direct investment. Granger causality tests demonstrate consumer price index and export are the causes of foreign direct investment, which might distort the explanation of foreign direct investment to balance of payment for manufactured goods exporters.