Is Currency Devaluation Appropriate for Improving Trade Balance in the WAMZ Countries?

Is There a J-Curve Effect in Sierra Leone? An Empirical Analysis with VECM

“…Despite similar work has been pursued in more recent times, the choice of methodology is hereby perceived as a novelty in adding value to the research gap by examining the twin effect of J-Curve and Marshall-Lerner condition in Sierra Leone using quarterly time series data spanning 2002Q2-2019Q4. In view of earlier studies in this area (reference to Englama et al, 2019;Bangura et al, 2013;Adeniyi et al, 2011), the researchers wish to extend the frontier by utilising three models. The models take cognisance of the twin approach of J-Curve and the Marshall Lerner condition where Model 1 is the Trade Balance, while Models 2 and 3 are the disaggregated Import and Export components to ascertain the Marshall-Lerner condition as part of the robustness of the study.…”

“…In this study, it is our intention to utilise the Vector Autoregression Model (VECM), which equally like Autoregressive Distributed Lag (ARDL) approach, is proving popular in exploring studies connected with the J-Curve phenomenon, particularly in the West African sub-regions (Onafowora, 2003;Bangura et al, 2013;Schaling & Kabundi, 2014;Onakoya & Johnson, 2018;Englama et al, 2019). The researchers, through exploration of empirical literatures noticed that VECM has never been utilised to determine short and long-run relationship between exchange rate and trade balance (supposedly associated with the J-Curve phenomenon) 1 particularly for the Sierra Leone economy-hence, it is 1 The uniqueness of this study is its approach to utilising three models that explore short and long-run association between exchange rate and trade balance, incorporating robust approach of the Marshall-Lerner condition, supposedly earmarked as Models 2 and 3 in the estimation procedure.…”