U.S.-Africa trade balance and the J-curve: An asymmetry analysis

ABSTRACT

For the first time in the body of literature, we consider bilateral trade balance models of the US with each of her 20 trading partners from Africa and try to assess the J-curve phenomenon. After applying the linear and nonlinear ARDL approaches, we find support for the J-curve effect in three partners from the linear models. However, support rises to eight partners when we shift to nonlinear models. Furthermore, we find short-run asymmetric effects of exchange rate changes in almost all models and significant long-run asymmetric effects in half of the partners.     

The Real Exchange Rate,the Ghanaian Trade Balance,and the J-curve

Using linear and nonlinear specifications, we studied the effects of real exchange rate changes on the trade balance of Ghana during the period 1986Q1 to 2016Q3. We found no evidence in support of the short- and long-run impact of exchange rate changes on the trade balance in the linear specification. The J-curve is refuted in this case. In contrast, exchange rate changes affected the trade balance in the nonlinear specification. Depreciations improve the trade balance in the long run, but appreciations have no impact. Hence, exchange rate changes have nonlinear effects on the trade balance. This is consistent with the J-curve phenomenon.     

Asymmetric response of the US–India trade balance to exchange rate changes: Evidence from 68 industries

The relationship between the trade balance and the exchange rate continues to attract attention by international economists and has entered into new territory, mostly due to advances in econometric methods. The introduction of asymmetric error‐correction modelling and asymmetric cointegration using the nonlinear ARDL approach of Shin et al. (Festschrift in Honor of Peter Schmidt: Econometric methods and applications, Springer, 2014, 281) as compared to the symmetric and linear ARDL approach of Pesaran et al. (Journal of Applied Econometrics, 2001, 16, 289) has led us in a new direction to discover relatively better results. We apply these methods to the bilateral trade balance model of each of the 68 industries that trade between India and the USA. The nonlinear approach not only provides more support to the J‐curve effect, but also yields support in favour of short‐run and long‐run asymmetric effects of exchange rate changes in most of the industries.     

Nonlinear effects of exchange rate changes on the South African bilateral trade balance

In testing for the J-curve, previous studies have shown that the trade balance model is better fitted using cointegration and error correction mechanisms. These mechanisms are able to incorporate the short-term deterioration and the long-term improvement of the trade balance – the definition of the J-curve. However, the drawback of the established cointegration and error correction frameworks is that they assume symmetry in the equilibrium adjustment process. Incidentally, studies which have used the linear frameworks have found little support for the J-curve. Since the adjustment process could be nonlinear, a fresh investigation of the J-curve using nonlinear approaches could provide competing evidence. This paper retested the J-curve by using quarterly data for South Africa and her key trade partners (China, Germany, India, Japan, the UK and the USA) and found the linear specification to support the J-curve phenomenon in only two cases (India and the USA) under relaxed conditions. In contrast, the nonlinear specification supported the J-curve phenomenon in all cases at no cost of serial correlation and functional misspecification. We also found the real exchange rate changes to have significant nonlinear effects on the South African trade balance.     

The exchange regime and trade balance in Turkey

Over the last 15 years, high trade deficits have become a source of external vulnerability for the relatively stabilized Turkish economy. This corresponds to the period where authorities have been following a floating exchange rate regime. Thus, this study aims to empirically show whether the adopted exchange rate regime has an impact on the trade balance for the period of 1987 Q1 to 2015 Q2. Estimation results indicate that there is a long-run relationship between the real effective exchange rate and trade balance under both fixed and floating regimes in Turkey, but there is no evidence for the J-curve hypothesis.     

The impact of parallel market exchange rate volatility and oil exports on real GDP in Syria: Evidence from the ARDL approach

This paper investigates the impact of parallel market exchange rate volatility and trade on real GDP and real GDP growth in the Syrian economy over the period of 1990Q1–2010Q4. To this end, we first construct a parallel market exchange rate volatility indicator. Second, we estimate an autoregressive distributed lag (ARDL) model where we include our indicator of volatility among the main determinants of real GDP. Our findings imply that real GDP can be explained by three main variables: parallel market exchange rate, money supply, and oil exports. The long-run equilibrium reveals that parallel market exchange rate volatility has a negative impact on real GDP compared to the positive impact of money supply and oil exports. In contrast, the short-run impact of parallel market exchange rate volatility on real GDP growth is positive and very small counter to the long-run impact. Furthermore, the coefficient of the error correction term of the estimated ARDL model indicates that real GDP deviation from the equilibrium level will be corrected by about 10% after each quarter.     

Foreign exchange rate and trade balance dynamics in East African countries

This study investigates the effects of real exchange rate on trade balance in East African countries. In contrast to past studies that have often focused on one country in the region and adopted traditional empirical methods that are subject to shortcomings, the present study employed the ARDL procedure and investigated the issue in 10 East African countries. The main results are as follows. First, real exchange depreciation significantly improves trade balance for four countries in individual country estimations, as well as in panel estimation. Second, the elasticity of trade balance with respect to real exchange rate is inelastic. Elasticity slightly increases after exchange rate liberalization but remains inelastic. Third, significant short-run fall was not found for trade balance, which suggests lack of evidence for J-curve relationship     

Real Exchange Rate Volatility on the Short- and Long-Run Trade Dynamics in Colombia

The short- and long-run implications of real exchange rate volatility on Colombian bilateral trade commodities and non-commodities with its major trade partners are analyzed from the perspectives of the Marshall-Lerner condition, a cointegration relation with other aggregate variables, and the J-curve hypothesis. Long-run equilibrium on the Colombian bilateral balance of trade with a country is more common when the trade volume is denominated in terms of one of the world's main currencies—as is the case of commodity trade and trade with a country whose national currency is one of these currencies. No evidence of the J-curve was found in any of the analyzed Colombian bilateral balances of trade. Opposite to the predictions of the J-curve hypothesis, more common are the scenarios of short-run improvements in the bilateral trade balances following a devaluation than are those with instantaneous declines. Improvements in the terms of trade are found to have a long-run deteriorating impact on the Colombian balance of trade, especially in the case of non-commodity trade. Policy makers should consider that continuous improvements in the Colombian terms of trade, as the ones recently observed, will ultimately be a detriment to the country's current balance of trade surplus.     

Dynamics of capital account and current account in Sri Lanka

This paper enquires the dynamics of current account and capital account in Sri Lanka for the period 2001:Q1 to 2016:Q1 and also examines the role of some policy variables such as exchange rate and interest rate in this dynamics. Estimated autoregressive distributed lag (ARDL) bound testing approach to cointegration followed by error correction representation of the ARDL model have found that current account is caused by capital account and exchange rate, where capital account causes to produce a deficit in current account. In the dynamic adjustment of current account due to exchange rate, an evidence of J-curve phenomenon is noticed. Capital account is neither caused by current account nor by exchange rate but interest rate has a positive impact on it. Robustness of these findings is testified by the vector autoregression model, Wald test of Granger causality followed by an impulse response analysis and a variance decomposition analysis. These analyses, in addition, establish a negative impact of interest rate on current account. With the best of knowledge this is the first study that reveals the dynamics of current and capital account of Sri Lanka. Such a dynamics is critical from the policy perspective. Policy makers should caution before capital account liberalization.     

Crude oil prices and the balance of trade: Asymmetric evidence from selected OPEC member countries

The contribution of this article is to assess whether the effects of crude oil price fluctuations on the trade balance are symmetric or asymmetric in the context of an individual oil-exporting country, specifically four OPEC member countries – Iran, Nigeria, Saudi Arabia, and Venezuela. To examine this subject thoroughly, we use three different measures of trade balances such as oil trade balance, non-oil trade balance, and total trade balance, and examine whether oil prices are asymmetrically passed on to the trade balances for those OPEC countries in the long- and short-run. After implementation of the nonlinear autoregressive distributed lag (ARDL) model, we find that changes in oil prices indeed have asymmetric effects on the oil trade balance for all four OPEC countries in the long-run, though not in the short-run. In the case of the non-oil and total trade balance, however, the asymmetry of oil price changes is not detected in both the long- and short-run.     

Modelling the asymmetric responses of price level to oil price changes in Qatar

This paper inspects the asymmetric effect of oil price on prices level in Qatar. To achieve that, we proceed by employing a nonlinear autoregressive distributed lag (ARDL) approach on data during the period 1990Q1–2014Q4. The estimation results show evidences of an incomplete and asymmetric influence of oil price on price level in the long term. Moreover, we find that price responses to negative changes in oil price is greater than its response to positive changes. Given Qatar’s economic features, a decrease in oil price could cause lower imports and production prices and consequently a substantial influence on domestic prices level. However, the lower effect of positive oil price changes on consumer prices can be explained by the subsidies system, the consumption patterns, and the exchange rate regime.     

Foreign aid and economic growth: evidence from Cambodia

This paper attempts to examine the growth impact of foreign aid in Cambodia over the period 1980–2014, using the autoregressive distributive lag (ARDL) bounds testing approach. The study also incorporates investment and trade openness into the model. The empirical findings show that trade openness has positive effects on growth in both the short run and the long run; investment has positively contributed to growth in the long run while foreign aid has positive impact on growth only for the short run. On the contrary, in the long run, it has negative impact on investment and growth. This can be suggested that dependence on foreign aid for long periods of time does not positively contribute to investment and growth in Cambodia. In order to achieve sustainable growth and enhanced industrialization, policy-makers should move from aid dependence to promote investments through elevating domestic and foreign capital in the country.     

Asymmetric effects of oil price changes on the balance of trade: Evidence from selected African countries

The main new contribution of this study was to delve into the asymmetric impacts of changes in oil prices on the trade balance in the framework of six major African economies. To tackle this topic carefully, we employ three measures of external balances—oil, non‐oil and total trade balances, and assess the asymmetric response of the external balances of those six economies to oil price changes in the short and long run. Like most previous studies, we first assume the impacts of oil price fluctuations to be symmetric and employ the linear autoregressive distributed lag (ARDL) method to explore the topic. We then separate oil price hikes from oil price plunges and implement the non‐linear ARDL method to reveal that the price of crude oil has a vital role to play in the trade balances for those six African economies. Further, there is evidence of significant asymmetric impacts of oil prices typically on the oil trade balance of Africa's top oil producing countries. For the non‐oil and total trade balances, in contrast, there is little evidence of the asymmetry of oil price changes.     

Money,Inflation and Output in Nigeria and South Africa: Could Friedman and Schwartz Be Right?

ABSTRACT

This study examines the non-linear relationship between money, inflation and output with respect to the Friedman and Schwartz hypotheses that monetary policy affects prices in the long-run but not in the short-run, and influences output in the short-run but not in the long-run. The study examines the case of Nigeria and South Africa for the period 1970–2016 using the ARDL approach. The study proved that Friedman and Schwartz were right that money growth influences output in the short-run and not in the long-run. This suggests monetary policy is neutral in the long-run; however, the findings of this study cast some doubts on their popular view that money growth affect prices in the long-run but not in the short-run. This study shows that money growth actually affects prices both in the short and long-run. Thus, it is only the long-run dimension of the second hypothesis that is valid; the short-run view of the hypothesis is invalid for both Nigeria and South Africa. In fact, the significant estimates of money growth on inflation in both countries prove that inflation is everywhere a monetary phenomenon (both in the short and long run).     

Assessing Dynamics of Palm Oil Import Demand: The Case of Six Asian Countries

This article uses annual data to investigate the palm oil import demand in selected Asian countries (India, China, Japan, Bangladesh, Korea, and Pakistan) through using the autoregressive distributed lag (ARDL) technique. The findings of the study show that the palm oil and substitute oils prices and the national income of the importing countries are significant determinants of palm oil demand across the six models. Other factors such as biofuel mandate, trade policies, and exchange rate also proved to be important factors affecting import demand for palm oil in some of these countries.     

AN ERROR CORRECTION ANALYSIS OF U.S.-MEXICO TRADE FLOWS

Abstract

Estimation of bilateral trade elasticities is less well documented than is the case for aggregate trade flows. This study estimates bilateral trade equations for Mexico and the United States. The empirical analysis is carried out using an error correction approach that allows imports and exports to adjust over time to changes in the independent variables that affect the demand for them. Results obtained indicate that imports and exports between the two neighbors react heterogeneously to variations in domestic prices, foreign prices, and currency values. Lag structures between the two trade equations also differ from each other.     

The Effects of Currency Depreciation on Industry Trade Flows between Malaysia and China

ABSTRACT

This article investigates the impact of real depreciation of ringgit/yuan on Malaysian bilateral trade with her largest trading partner, China, over the period of 1987 to 2013. Using disaggregated import and export data from 39 industries, the results from the bounds testing approach to co-integration and error-correction model reveal that the real bilateral exchange rate has short- and long-run effects in the majority of the industries. However, the short-run effects shift into the long run in nine out of 20 import industries and in 13 out of 20 export industries. Most of these are small industries producing intermediate goods.     

Capital Flows and Economic Growth in Ghana

ABSTRACT

The study examines the differential effects of capital flows on economic growth in Ghana over the period 1970–2014 using autoregressive distributed lag (ARDL). Breakpoint unit root tests are employed to cater for structural change and breaks in time series. Afterwards, these break dates are fed into the ADRL model as dummy variables to allow for the computation of a more robust cointegrating vector. The findings indicate that in both the short and long run capital flows (i.e. FDI, aid, and external debt) have negative effects on economic growth. However, remittances exhibit positive insignificant elasticity in all the regressions. Further, the empirical results show that while the impact of trade, gross capital formation and population growth on growth are mixed, that of inflation is negative. The results of the study are consistent with the idea that the impact of capital flows in Africa has been exaggerated.     

人民币汇率升值的出口价格传递效应

运用协整分析及ARDL分布滞后模型从长期和短期较为准确地估计出口商在人民币汇率升值影响下对国内出口价格的调整程度,进一步分析出口商品的汇率传递弹性,以恰当地评估人民币汇率升值对不同类型出口商品价格的影响差异以及对该出口行业的影响,为我国制定合适的产业政策及贸易政策提供相关建议。     

J-curve effect and exchange rate pass-through: an empirical investigation of the united states

The J-curve theory predicts that the balance of trade will initially deteriorate before improving after a currency depreciation. This article finds empirical evidence that some of the 1985-1987 trade balance deterioration can be attributed to this phenomenon. Import exchange rate pass-through was found to have decreased during the 1985-1987 dollar depreciation, mitigating the increase in the trade deficit