Does a J-curve exist for Korea and Taiwan?

Abstract

This article examines whether the trade balance of two dynamic export-oriented economies, Korea and Taiwan, exhibits a J-curve effect. The article studies both their bilateral and aggregate trade balance during the flexible exchange-rate era. When the exchange-rate coefficients are unconstrained, we demonstrate that no J-curve effect exists either for bilateral or aggregate trade balances. Several robustness checks confirm the validity of our findings. When a polynomial-distribute lag structure is imposed on exchange-rate coefficients, a J-curve is evident in some cases. The article discusses possible explanations for the general lack of evidence in favor of a J-curve, including the response of a small country's trade balance to exchange-rate changes. Copyright Kluwer Academic Publishers 1996trade balance, Korea, Taiwan, J-curve,

Growth and the current account: Malaysia and Singapore

“…The first striking result is that the sum of the exchange rate elasticities in the reduced form model is less than 1, implying a rejection of the M-L condition, and the instability of the foreign exchange market (similar results supporting the low exchange rate elasticity of foreign trade are reported in Hsing [1996] and Wilson [2001]). Therefore, it is not possible to obtain a long-run equilibrium value for the exchange rate by imposing a balanced current account.…”

Asymmetric Effects of Exchange Rate Changes and the J‐curve: New Evidence from 61 Malaysia–Thailand Industries

“…Once they estimate their bilateral models between the USA and each of her six partners, still they fail to find either short‐run (J‐curve) or long‐run significant links between the real bilateral exchange rate and the bilateral trade balance. Bilateral trade balance models employed by Rose and Yellen () and others such as Hsing and Savvides (), Hacker and Hatemi‐J () and Halicioglu (, ) were very recently criticized by Bahmani‐Oskooee and Fariditavana () on the grounds that they assumed exchange rate changes to have symmetric effects on the bilateral trade balance. As they argued, since traders could react to currency depreciation differently than to appreciations, exchange rate changes could have asymmetric effects on the trade balance.…”

The effect of exchange rate changes on trade balances in the short and long run

“…Numerous empirical investigations of how exchange rate changes affect the trade balance (or the export‐to‐import ratio) in the long run and short run have been done for industrialized economies (see, for example, Rose and Yellen, 1989, and Koray and McMillan, 1999, for the US; Gupta‐Kapoor and Ramakrishnan, 1999, and Lal and Lowinger, 2001, for Japan; Hacker and Hatemi‐J, 2003, for small North European economies; and Boyd, Caporale and Smith, 2001; Bahmani‐Oskooee and Alse, 1994; and Bayoumi, 1999, for various industrialized economies). There are also many studies on the J‐curve dealing with East Asian ‘Tiger’ economies (see, for example, Hsing and Savvides, 1996, on Korea and Taiwan; Wilson and Tat, 2001, on Singapore; and Lal and Lowinger, 2001, on seven East Asian economies). Rose (1990) and Bahmani‐Oskooee and Alse (1994) have also examined the J‐curve phenomenon for various developing economies.…”