p.p1 insignificant variables have been moved. Table 7

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The Results which are showing the calculations from our previous sections logically related with different studies which examine the US Mexico trade balance. It is possible that the freedom of trade provided by the North American Free Trade Agreement (NAFTA), which has eliminated most tariffs on goods traded between the US and Mexico, may help to relieve friction in the adjustment process (Bahmani-Oskooee & Hegerty 2011, McDaniel & Agama 2003).
The absorption model results are reported in table 6. Most variables in that model are obviously not statistically important. This may be due to the multicollinearity issues discussed previously.
Variables were eliminated beginning with the highest P-value and going through to those variables that remained statistically important at the 95% level. Table 7 shows the results for the reduced regression subsequently minor variable that have been discharged. Due to stunning indication that supports domestic production, foreign production and exchange rate as determinants of the trade balance formula, those variables were kept regardless of P-value.
Table 7. Results of the Restricted Regression after the insignificant variables have been moved. 
Table 7 is giving us the additional variables, which are US government spending(Gus) and Money supply to Mexico(Mmx),  that were proposed by Himarious (1989). As it was mentioned before, there is a strong linkage between Gus and Yus, also Ymx and Mmx. When this variables are included in the model, then Mexican GDP is showing negative sign.
The further analysis of those variables explain that they are simultaneously correspond with their correlated values of production. The correlation between GDP of US and Government Spending for US is equal to 0.984 and GDP of Mexico and Money Supply for Mexico is equal to 0.985. We’ve decided to remove Gus and Mmx, because the determinants of trade balance was not significantly affected. A test was conducted to reveal the contribution of these two variables on the value R. Test showed us that there is no significant effect from Gus and Mmx to the F-value of 47.384.
Table 8 is a matrix reporting the correlation coefficients of all of the independent variables in this model. 
Table 8. Matrix Reporting The Correlation Coefficients 
Succeeding in discarding the comparable variables Gus and Mmx, Our model is left with the variables considered in the elasticity model. The model of Himarios was not often used to analyze the trade balance, but also it was not proved that model is wrong. The relationship between these variables and the production occurs to be unnecessary.
Table 9 is showing results which can support the results from first model but in a different functional form. Table 9 gives results confirming the results from first model
The results of the restricted regression are shown in table 9 and now allow for the opportunity to confirm the results of the first model in a different functional form. No longer analyzed in logarithmic form, or employing the ratio of exports to imports the results are not as clean as the elasticity model offers, however table 9 reports results that confirm those found using the first model. 
Table 9. Results Of The Restricted Regression 
The coefficients of each of the variables display the same relationships as found with the elasticity model. Real exchange rate is not shown to be as highly significant in the period coinciding with depreciation however; it does maintain the correct relationship. 
As the real exchange rate variables are lagged the significance of all variables in the model falls apart. The model analyzed in this form also displays heteroskedasticity; this is not a problem in the elasticity model. It is probably because the functional form of the elasticity model is simply better suited for this analysis, hence its wide spread use. 
All things considered the restricted absorption model’s results do still echo those of the first. The US Mexico trade balance does respond initially to changes in real exchange rate. This implies that the Marshall-Lerner condition is met, provides no evidence of J-curve phenomena, and most importantly shows that depreciation of the dollar can be used as a tool to improve the US Mexico trade balance. 
5. Conclusion 
This study examines the role of United States output, Mexican Output, and the real exchange rate in determining movements of the trade balance. Using two models; the first being the widely accepted elasticity approach, and the second referred to as an absorption approach. A statistical regression was employed to analyze each of the models for the period of 1994-I to 2010-IV. The findings of this analysis are consistent with theory and contemporary literature on the subject. 
The results of both models show that the above mentioned explanatory variables do display the relationships with trade balance that theory would predict. United States output has a negative relationship with the US Mexico trade balance. A rise in Mexican output causes the trade balance to move towards surplus, with a lesser impact than does US output. Most importantly a depreciation of the US Dollar has a positive impact on the trade balance in the period that it occurs. 
The results of this study also suggest that the Marshall-Lerner condition is met for the US and do not provide support for the addition of monetary policy, fiscal policy, or interest rates as levels of output more than likely already reflect that information. Further the impact of the depreciation lingers for three additional periods in the future. This means that Dollar depreciation would be an appropriate tool to reduce trade deficit with Mexico. 
It is obvious however, that the US does not only trade with Mexico. Dollar depreciation will lead to an improvement in the US Mexico trade balance; nevertheless those effects may be negated if other trading partner’s balances worsen. This research adds detail to the larger picture of trade balance behavior. However it is the larger picture that must be kept in mind when policy decisions concerning a nation’s currency and trade balance are made. 


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