Determinants of Balance of payments – Evidence from India and US
Keywords:
Balance of Payments, Macroeconomic variables, GDP, inflation, exchange rateAbstract
Balance of Payments is one of the most widely used methods to monitor all international monetary transactions at a specific period of time. Balance of Payments is one of the most widely accepted methods to analyse the performance of a nation. Apart from this, it also acts as an accurate determinant for growth analysis. With the help of balance of payments, a country is able to maintain and manage the exchange rate adjustment mechanism. Balance of Payments is one of the few mechanisms that help identify the economic conditions of a nation. India has had a deficit Balance of Payments for quite a long time now and it is highly vital to understand how macroeconomic variables tend to impact Balance of Payments of a nation. Various studies have been conducted to analyse how macroeconomic variables like GDP, Exchange Rates, Inflation rate and Interest rates tend to impact the Balance of Payments of a nation. However, the extent to which these variables impact the Balance of Payments of a nation is often questioned. The main purpose of the study is to analyse the impact of macroeconomic variables like GDP, Inflation, Exchange Rates and Interest Rates on Indian and U.S Balance of Payments. The study was conducted for a period of 17 years i.e. 2000-2017 and correlation and regression along with descriptive statistics was used. The study shows that exchange rates and inflation have a significant impact on the Indian and U.S Balance of Payments.
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