EMPIRICAL ANALYSIS of the RELATIONSHIP BETWEEN OIL PRICE and TRADE BALANCE

The impact of the oil shocks in the 1970s and the acceleration of globalization since the 1980s have led to the emergence of a vast literature investigating the relationship between the growth in world trade volume and various macroeconomic variables related to oil prices. Due to its significance as a commodity in economic activities, oil prices have remained a closely monitored indicator to this day. The aim of this study is to analyze the relationship between oil prices and trade balance. The study is conducted for a panel consisting of 8 countries (Bangladesh, Brazil, Colombia, India, Mauritius, Pakistan, Turkey, and South Africa) covering the period from 2006 to 2021. The relationships between variables are analyzed using the Fixed Effects Model and the Driscoll-Kraay estimator. The results of the study indicate the presence of weak relationships between oil prices and trade balance in terms of the Fixed Effects Model, while strong relationships are observed when analyzed with the Driscoll-Kraay Estimator. The study also demonstrates strong relationships between GDP, exchange rates, and trade balance in both prediction models.