Macroeconomic determinants of Tunisia’s trade balance: An ARDL approach (1990–2021)

Abstract

This study aims to examine the key macroeconomic determinants of Tunisia’s trade balance over the period 1990 to 2021 by analyzing the dynamic interactions among broad money supply (M2), real effective exchange rate (EX), and real gross domestic product (GDP). The study employs the Autoregressive Distributed Lag (ARDL) Bounds Testing approach to assess both short-run and long-run relationships. The analysis is grounded in elasticity, absorption, and monetary theories, using annual time series data. Diagnostic tests for stationarity, residual behavior (including autocorrelation, normality, and heteroskedasticity), and model stability through the CUSUM test are also conducted to validate the model. The results indicate that GDP and M2 have significant effects on the trade balance in both the short and long run. An increase in M2 contributes to a worsening trade balance due to increased domestic consumption and import demand, while GDP growth enhances export performance and improves trade balance outcomes. The real effective exchange rate exerts a significant positive long-run impact, supporting the view that currency depreciation strengthens export competitiveness. The findings suggest that policymakers should adopt cautious monetary expansion, maintain a flexible and strategic exchange rate policy, promote export-led industrial development, and support investment-driven GDP growth to reduce persistent trade imbalances and enhance long-term external sector sustainability in Tunisia.