An empirical analysis of the trade balance in postcommunist Albania

In this study we empirically analyze the relationship between real exports and real imports during the postcommunist transition in Albania. The country liberalized its trade in the early 1990s after the fall of communism and has seen its trade deficit increase since then. The continuous deterioration of the country's trade balance can create serious problems for its economy. We employ the ARDL bounds testing approach to a transformed equation derived from the Husted's (1992) model of inter-temporal budget constraint. The data used are annual observations from 1992 to 2012 obtained from the World Development Indicators 2013. Results show that a long term relationship exists between real exports and real imports. In addition, we find that imports grow faster than exports and the country's trade deficit is likely to increase with the increase of imports. More specifically, a 10 percents increase of real imports is accompanied by a 9.61 percents increase of real exports. The rising trade deficit should be a cause of concern for the country's policymakers. They should try to adopt effective export promoting policies as such policies would be particularly suitable in reducing the trade deficit in Albania.