Global International Economics
Empirical Study of the Correlation between Trade Balance and its Determinants
Prepared by:
IBM Petra Christian University
Surabaya - Indonesia
Rony Kristianto – 34405005
Andrean Chris Taneka – 34405037
Tan Hendri Tejo Martono – 34405041
Heradi Taruatmaja Dirautama – 34405048
Daniel Azwin Hanafi – 34405050
International Business Program
Faculty of Economics
Petra Christian University
1. Background
In this increasingly borderless world, a country’s economic activities occur not only inside that country but also outside. Therefore, the international economics subject is established. Among many topics that international economics cover, trade balance is one of the vital aspects in studying international economic activities. Trade balance is a part of a country’s Balance of Payments. It refers to the balance of exports value subtracted by imports value in a country in a period of time. The trade balance of a country is theoretically determined by five factors which are inflation rates, exchange rates, trade policies, domestic country’s income and foreign country’s income. Further explanation about terms and theoretical relationships of those factors with trade balance will be exposed in the next chapter.
Our research objective in this paper is to test the correlation between trade balance and its determinants in Indonesia and Japan (as the trading partner) during the periods of 2003-2007. We specifically choose Japan as the trading partner in this research, as opposed to the rest of the world, because two of our independent variables (namely exchange rates and foreign country’s income) will be much more complicated if multilateral trading ac ...