Empirical Evidence on the J-Curve Between Pakistan and Selected South Asian Trade Partners

Abstract

Abstract:The earlier researches investigated the J-curve hypothesis along with the Marshall-Lerner condition in Pakistan used the OLS, 2SLS, 3SLS, and Instrumental Variables (IV) techniques. The estimates obtained from these studies may suffer from spurious regression problems as the models were estimated without incorporating the co-integrating property of the variables. Hence, the objective of this work is to analyze the trade balance model using relatively the new co-integration approach, the ARDL model. The J-curve phenomenon is tested for Pakistan's trade with her selected South Asian trade partners, including Republic of India and Democratic Socialist Republic of Sri Lanka using the annual time series data over the 1975-2013 periods. After empirical analysis, it was observed that the J-curve occurrence is rejected in favor of Pakistan with its trading partners. This study concludes that depreciation of Pakistani Rupee has a constructive result on Pakistan's trade with these trade partners.

The effect of exchange rate movements on trade balance performance in Egypt: Is there a J-curve phenomenon?

“…Hence, the study confirmed having no evidence for J-curve phenomenon. Khalid (2017) found the same results in testing the J-curve phenomenon in Pakistan's trade with its main South Asian trading partners. Baek et al (2009) assessed the dynamic effects of exchange rate variability on agricultural bilateral trade of the United States with its major trade partners.…”

“…The same source was used to obtain the exchange rate of the Egyptian pound against the currencies of the other partners. The same TB model estimated in several researches (Baek et al, 2009;Bahmani-Oskooee and Ratha 2004;Khalid, 2017) is used. The long-term model takes the following form:…”

“…In the short-term, demand for exports and imports are less-elastic. The reason for this is the length of time needed to change consumers' behavior and negotiate a change in trade deals (Baharumshah, 2001;Begović and Kreso, 2017;Khalid, 2017;Mehare and Edriss, 2012).…”

“…Hence, the ability of currency devaluation to improve TB depends on the responsiveness of the national income and domestic absorption to the changes in the employment of resources and the terms-of-trade (ToT) regardless of the time horizon (Baek et al, 2009;Choi, 2017;Khalid, 2017).…”

Is Exchange Rate Effect Trade Balance in Pakistan? Evidence Based on J- Curve

“…They found an evidence of short run asymmetric effect in almost all 11 industries but the short run effect transformed into a long run effect in only seven industries. Khalid (2017) examined the J-curve phenomenon between Pakistan and her selected south Asian trade partners using the annual time series data over the period 1975-2013 using ARDL approach. The author concluded that in case of Pakistan the j-curve phenomenon is rejected with its trading partners.…”