Growth in motion: the effects of terms of trade components, labor, capital, and investment on U.S. economic performance

This study significantly contributes to the existing body of knowledge by examining the long- and short-run effects of terms of trade components (TOT computer & communication, TOT fuel, TOT food, and TOT goods), capital, labour force, stock trade, and investment on U.S. economic growth from 1980 to 2021 using the Autoregressive Distributed Lag (ARDL) model. The findings of terms of trade (TOT) reveal that TOT computer & communication and TOT food are primarily export-oriented components, whereas TOT fuel and TOT goods are predominantly import-oriented components. However, the findings of the unit root test reveal that all variables are stationary at the first difference I(1). The ARDL bounds test confirms the existence of a long-run relationship between the dependent and independent variables. Long-run analysis indicates that TOT fuel and TOT food negatively affect economic growth, while TOT goods and TOT computers & communication positively contribute to it. Additionally, capital, labour force, and investment are found to be key drivers of U.S. economic growth. The Error Correction Model (ECM) results show an 87% adjustment rate from short-run to long-run equilibrium, signifying a gradual convergence toward equilibrium. The time-varying Granger Causality test demonstrates that GDP causally impacts terms of trade in computer and communication products, goods, labour force, gross capital, and stock trade. Furthermore, impulse response analysis reveals a stable and positive upward trend in GDP's effect on TOT goods, TOT computer & communication, and TOT food, while TOT fuel exhibits a downward trend. The study recommends that policymakers invest in the technological sector to reduce reliance on fuel imports, enhance international trade, and thereby promote sustained economic growth.