Empirical Evidence on the J-Curve Between Pakistan and Selected South Asian Trade Partners
European Business & Management
Volume 3, Issue 4, July 2017, Pages: 57-64
Received: Jul. 4, 2017; Accepted: Jul. 12, 2017; Published: Aug. 3, 2017
Views 1517      Downloads 107
Author
Waqar Khalid, School of Economics, Quaid-I-Azam University, Islamabad, Pakistan
Article Tools
Follow on us
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.
Keywords
J-curve, Depreciation, Trade Balance, Cointegration, Pakistan, India, Sri Lanka
To cite this article
Waqar Khalid, Empirical Evidence on the J-Curve Between Pakistan and Selected South Asian Trade Partners, European Business & Management. Vol. 3, No. 4, 2017, pp. 57-64. doi: 10.11648/j.ebm.20170304.11
Copyright
Copyright © 2017 Authors retain the copyright of this article.
This article is an open access article distributed under the Creative Commons Attribution License (http://creativecommons.org/licenses/by/4.0/) which permits unrestricted use, distribution, and reproduction in any medium, provided the original work is properly cited.
References
[1]
Aftab, Z. and Aurangzeb. (2002), “The Long Run and Short Run Impacts of Exchange Rate Devaluation on Pakistan’s Trade Performance”, The Pakistan Development Review, Vol. 41, No. 3, 277-86.
[2]
Aftab, Z. and S, Khan. (2008), “Bilateral J-curve between Pakistan and Her Trading Partners”, PIDE Working Paper No.2008:45.
[3]
Afzal, M. and Rahman, H. (2004), “The J-Curve Phenomenon: An Evidence from Pakistan”, Pakistan Economic and Social Review, Vol. 41, No. 1 (2), 45-58.
[4]
Akbostanci, E. (2004), “Dynamics of the trade balance: The Turkish J-curve”, Emerging Markets Finance and Trade, Vol. 40, No. 5, 57-73.
[5]
A revisit.Inter disciplinary Journal of Contemporary Research in Business, 9 (3), 1456-67.
[6]
Arora, S., Bahmani-Oskooee, M., and Goswami, G. G. (2003), “Bilateral J-curve between India and her trading partners”, Applied Economics, Vol. 35, 1037–41.
[7]
Awan, R., Shahbaz, M., Sher, F., and Javed, K. (2012),”Does J-Curve phenomenon exist in Pakistan”.
[8]
Bahmani-Oskooee, M. and Harvey, H. (2009), “The J-curve: Indonesia vs. Her Major Trading Partners”, Journal of Economic Integration, Vol. 24, No. 4, 765-77.
[9]
Bahmani-Oskooee, M. and Cheema, J. (2009), “Short run and long run effects of currency depreciation on the bilateral trade balance between Pakistan and her major trading partners.” Journal of Economic Development, Vol. 34, No. 1.
[10]
Bahmani-Oskooee, M. and T.J. Brooks (1999), “Bilateral J-Curve between US and her Trading Partners”, Welt-wirtschaftliches Archive, Vol. 135, No. 1, 156-65.
[11]
Bahmani-Oskooee, M., and J. Alse (1994), “Short-Run versus Long-Run Effects of Devaluation: Error-Correction Modeling and Co-integration”, Eastern Economic Journal, Vol. 20, No. 4, 453-464.
[12]
Bahmani-Oskooee, M. and J, Cheema. (2009), “Short-Run and Long-Run Effects of Currency Depreciation on the Bilateral Trade Balance between Pakistan and Her Major Trading Partners”, Journal of Economic Development, Vol. 34, No. 1, 19-46.
[13]
Bahmani-Oskooee, M., Iqbal, J., and Nosheen, M. (2015), “Commodity trade between Pakistan and the U. S: Is there evidence of the J-curve?”Applied Economics, 1-9.
[14]
Bahmani-Oskooee, M. and Martian T. Bohl (2000), “German monetary unification and the stability of long-run German money demand function”, Economics Letters, Vol. 66, 203-08.
[15]
Brown, R. I., J. Durbin., and J. M. Evans (1975), “Techniques for testing the constancy of regression relations over time”, Journal of Royal Statistical Society, Series- B37, 149-63.
[16]
Bahmani-Oskooee, M., and A. Ratha (2004a), “The J-Curve: A literature Review,” Applied Economics, Vol. 36, No. 13, 1377-98.
[17]
Bahmani-Oskooee, M. and Harvey, H. (2006), “How sensitive are Malaysia’s bilateral trade flows to depreciation?Applied Economics, Vol. 38, No. 11, 1279-86.
[18]
Bahmani-Oskooee, Mohsen. (1985), “Devaluation and the J-curve: some evidence from LDCs”, Review of Economics and Statistics, Vol. 67, 500-04.
[19]
Bahmani-Oskooee, M. and Niroomand, F. (1998), “Long-run Price Elasticities and the Marshall-Lerner condition revisited”, Economics Letters, Vol. 61, No. 1, 101-109.
[20]
Krugman, P. R., Obstfeld, M., and Melitz, M. J. (2012), “International Economics, Theory & Policy”. Chapter–17, 447- 451.
[21]
Kyophilavong, P., Shahbaz, M., and Uddin, G. S. (2013), ‘Does J-Curve phenomenon exist in case of Laos? An ARDL Approach”, Journal of Economic Modeling, Vol. No. 35, 833-839.
[22]
Lowinger, T. A. (1978), "Domestic Inflation and Exchange Rate Changes: The Less-Developed Countries' Case," Welt-wirtschaftliches Archive, Vol. 114, 85-100.
[23]
Magee, S. P. (1973), “Currency contracts, pass through and devaluation”, Brooking Papers on Economic Activity, Vol. 1, 303–25.
[24]
Pesaran, M. H., Y. Shin., and R. J. Smith (2001), “Bounds Testing Approaches to the Analysis of Level Relationships”, Journal of Applied Econometrics, Vol. 16, No. 03, 289-326.
[25]
Rose, A. K. and Yellen, J. L. (1989), “Is there a J-curve?”, Journal of Monetary Economics, Vol. 24, 53–68.
[26]
Shahbaz, M. (2009), “On Nominal and Real Devaluations Relation: An Econometric Evidence for Pakistan”, International Journal of Applied Econometrics and Quantitative Studies”, Vol. 9, 86-108.
[27]
Shahbaz, M., R, U. Awan, and K, Ahmad. (2011), “The Exchange Value of the Pakistan Rupee and Pakistan Trade Balance: An ARDL Bounds Testing Approach”, The Journal of Developing Areas, Vol. 44, 69-93.
[28]
Shahbaz, M., A, Jalil, and F, Islam. (2012). “Real Exchange Rate Changes and the Trade Balance: The Evidence from Pakistan”, The International Trade Journal, Vol. 26, No. 2, 139-153.
[29]
Lal, A. K. and Lowinger, T. C. (2002), “The J-curve: evidence from East Asia, “Journal of Economic Integration, Vol. 17, pp. 397-415.
ADDRESS
Science Publishing Group
1 Rockefeller Plaza,
10th and 11th Floors,
New York, NY 10020
U.S.A.
Tel: (001)347-983-5186