The Determinants of the Japanese Real Imports from Australian Exports

Abstract

The bilateral trade between Australia and Japan has played very important roles in Australian and Japanese economies over a long period of time. In this study, we apply the bounds testing approach within an Autoregressive Distributed Lag framework (ARDL) to evaluate the major determinants of Japanese demand for Australian exports. The modelling results show that real Gross Domestic Product (GDP) is the most important factor positively affecting the Japanese real imports from Australia. The real exchange rate and foreign reserves assets affect negatively but are inelastic in both the long run and the short run. With a value of -0.74, the error correction coefficient is very significant. This indicates that only a short period of time (4 months) is needed to achieve long run equilibrium.