The Mediating Role of a Healthy Economy in the Relationship Between Favorable Balance of Payment Position and Transnational Trade

A favorable balance of payments (BOP) position is often viewed as a sign of economic strength. However, its direct impact on transnational trade remains a subject of academic debate. While existing literature emphasizes the importance of economic stability in shaping trade outcomes, limited research explores how a healthy economy mediates the relationship between a favorable BOP position and transnational trade performance. This conceptual study aims to bridge that gap by analyzing the theoretical linkages between BOP, economic health, and trade expansion. Using a conceptual analysis methodology, it synthesizes recent empirical and theoretical research to examine the mechanisms through which economic stability—characterized by low inflation, sustainable growth, and effective fiscal policies—enhances the positive trade effects of a surplus BOP. The analysis reveals that while a favorable BOP position can create opportunities for international trade, its effectiveness is contingent upon macroeconomic stability, sound institutional frameworks, and consistent policies. Conversely, a weak or volatile economy diminishes these benefits, leading to trade inefficiencies and external vulnerabilities. The key recommendation is for policymakers to prioritize economic reforms that enhance stability, including prudent fiscal policies, effective exchange rate management, and trade facilitation measures. These actions are necessary to ensure that the benefits of a favorable BOP translate into sustainable trade growth. Future research should empirically test these conceptual linkages using cross-country data to validate the proposed mediation model. This study contributes to international trade theory by highlighting the crucial role of economic health in maximizing the trade advantages of a favorable BOP position.