Relationship between trade deficit and economic growth

Abstract

Myanmar has suffered continuous long-term trade deficits. However, there have still been no definite conclusions regarding the relationship between trade deficits and economic growth. This paper therefore aims to examine whether trade deficits have a positive or negative effect on Myanmar’s economic growth through an empirical analysis of the years 1989 to 2015. This paper utilizes the Johansen co-integration test and the Vector Error Correction Model to respectively analyze the long-run and short-run relationship between trade deficits and economic growth in the case of Myanmar. The results show that in the long-run, there is a significant negative relationship between trade deficits and economic growth. However, in the short-run, there is an insignificant negative relationship between trade deficits and economic growth.