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The J‐Curve At The Industry Level: Evidence From Trade Between The Us And Australia

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  • MOHSEN BAHMANI‐OSKOOEE
  • YOMGQING WANG

Abstract

Previous studies that tested the J‐curve phenomenon for Australia used trade data either between Australia and the rest of the world or between Australia and its trading partners on a bilateral basis. They were unable to find support for the J‐curve in the short run nor any significant relation between the trade balance and the exchange rate in the long run. In this paper we disaggregate the data between Australia and its second largest trading partner, the US, and consider the trade between 108 industries. Using annual data over the 1962–2003 period and bounds testing approach to cointegration and error‐correction modelling, we are able to discover short‐run effects of currency depreciation on the trade balance in 64 industries. The long‐run and positive effects were only evidenced in 35 cases, supporting the J‐curve.

Suggested Citation

  • Mohsen Bahmani‐Oskooee & Yomgqing Wang, 2007. "The J‐Curve At The Industry Level: Evidence From Trade Between The Us And Australia," Australian Economic Papers, Wiley Blackwell, vol. 46(4), pages 315-328, December.
  • Handle: RePEc:bla:ausecp:v:46:y:2007:i:4:p:315-328
    DOI: 10.1111/j.1467-8454.2007.00322.x
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    References listed on IDEAS

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    1. Mohsen Bahmani-Oskooee & Taggert Brooks, 1999. "Bilateral J-Curve between U.S. and her trading partners," Review of World Economics (Weltwirtschaftliches Archiv), Springer;Institut für Weltwirtschaft (Kiel Institute for the World Economy), vol. 135(1), pages 156-165, March.
    2. Gupta-Kapoor Anju & Ramakrishnan Uma, 1999. "Is There A J-Curve? A New Estimation for Japan," International Economic Journal, Taylor & Francis Journals, vol. 13(4), pages 71-79.
    3. Mohsen Bahmani-Oskooee & Janardhanan Alse, 1994. "Short-Run versus Long-Run Effects of Devaluation: Error-Correction Modeling and Cointegration," Eastern Economic Journal, Eastern Economic Association, vol. 20(4), pages 453-464, Fall.
    4. M. Hashem Pesaran & Yongcheol Shin & Richard J. Smith, 2001. "Bounds testing approaches to the analysis of level relationships," Journal of Applied Econometrics, John Wiley & Sons, Ltd., vol. 16(3), pages 289-326.
    5. Bahmani-Oskooee, Mohsen, 1985. "Devaluation and the J-Curve: Some Evidence from LDCs," The Review of Economics and Statistics, MIT Press, vol. 67(3), pages 500-504, August.
    6. Jiawen Yang, 1997. "Exchange Rate Pass-Through In U.S. Manufacturing Industries," The Review of Economics and Statistics, MIT Press, vol. 79(1), pages 95-104, February.
    7. Felmingham, Bruce S, 1988. "Where Is the Australian J-Curve?," Bulletin of Economic Research, Wiley Blackwell, vol. 40(1), pages 43-56, January.
    8. M. Bahmani-Oskooee & Gour Goswami, 2003. "A disaggregated approach to test the J-Curve phenomenon: Japan versus her major trading partners," Journal of Economics and Finance, Springer;Academy of Economics and Finance, vol. 27(1), pages 102-113, March.
    9. Devereux, M. B., 2000. "How does a devaluation affect the current account?," Journal of International Money and Finance, Elsevier, vol. 19(6), pages 833-851, December.
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    12. Backus, David K & Kehoe, Patrick J & Kydland, Finn E, 1994. "Dynamics of the Trade Balance and the Terms of Trade: The J-Curve?," American Economic Review, American Economic Association, vol. 84(1), pages 84-103, March.
    13. Bahmani-Oskooee, Mohsen, 1986. "Determinants of international trade flows : The Case of Developing Countries," Journal of Development Economics, Elsevier, vol. 20(1), pages 107-123.
    14. Rose, Andrew K. & Yellen, Janet L., 1989. "Is there a J-curve?," Journal of Monetary Economics, Elsevier, vol. 24(1), pages 53-68, July.
    15. Himarios, Daniel, 1989. "Do Devaluations Improve the Trade Balance? The Evidence Revisited," Economic Inquiry, Western Economic Association International, vol. 27(1), pages 143-168, January.
    16. Gagnon, Joseph E. & Knetter, Michael M., 1995. "Markup adjustment and exchange rate fluctuations: evidence from panel data on automobile exports," Journal of International Money and Finance, Elsevier, vol. 14(2), pages 289-310, April.
    17. Bahmani-Oskooee, Mohsen, 1991. "Is there a long-run relation between the trade balance and the real effective exchange rate of LDCs?," Economics Letters, Elsevier, vol. 36(4), pages 403-407, August.
    18. Mohsen Bahmani‐Oskooee & Gour G. Goswami & Bidyut Kumar Talukdar, 2005. "The Bilateral J‐Curve: Australia Versus Her 23 Trading Partners," Australian Economic Papers, Wiley Blackwell, vol. 44(2), pages 110-120, June.
    19. Kanta Marwah & Lawrence R. Klein, 1996. "Estimation of J-Curves: United States and Canada," Canadian Journal of Economics, Canadian Economics Association, vol. 29(3), pages 523-539, August.
    20. Mohsen Bahmani-Oskooee & Artatrana Ratha, 2004. "The J-Curve: a literature review," Applied Economics, Taylor & Francis Journals, vol. 36(13), pages 1377-1398.
    21. Thomas Klitgaard, 1999. "Exchange rates and profit margins: the case of Japanese exporters," Economic Policy Review, Federal Reserve Bank of New York, vol. 5(Apr), pages 41-54.
    22. Bahmani-Oskooee, Mohsen & Malixi, Margaret, 1992. "More evidence on the J curve from LDCs," Journal of Policy Modeling, Elsevier, vol. 14(5), pages 641-653, October.
    23. Mohsen Bahmani-Oskooee & Scott Hegerty, 2009. "Trade Liberalisation, the Peso, and Mexico's Commodity Trade Flows with the United States," Journal of Development Studies, Taylor & Francis Journals, vol. 45(5), pages 693-725.
    24. Mohsen Bahmani-Oskooee & Zohre Ardalani, 2006. "Exchange Rate Sensitivity of U.S. Trade Flows: Evidence from Industry Data," Southern Economic Journal, John Wiley & Sons, vol. 72(3), pages 542-559, January.
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    Cited by:

    1. Trofimov, Ivan D., 2020. "Is There a J-Curve Effect in the Services Trade in Canada? A Panel Data Analysis," MPRA Paper 106704, University Library of Munich, Germany.
    2. M. Ege Yazgan & Serda Selin Ozturk, 2019. "Real Exchange Rates and the Balance of Trade: Does the J-curve Effect Really Hold?," Open Economies Review, Springer, vol. 30(2), pages 343-373, April.
    3. Baek, Jungho & Koo, Won W. & Mulik, Kranti, 2009. "Exchange Rate Dynamics and the Bilateral Trade Balance: The Case of U.S. Agriculture," Agricultural and Resource Economics Review, Cambridge University Press, vol. 38(2), pages 213-228, October.
    4. Bahmani-Oskooee, Mohsen & Hegerty, Scott W., 2009. "The Japanese-U.S. trade balance and the yen: Evidence from industry data," Japan and the World Economy, Elsevier, vol. 21(2), pages 161-171, March.
    5. Houssem Eddine Chebbi & Marcelo Olarreaga, 2011. "Agricultural Trade Balance and Exchange Rate Depreciation: The Case of Tunisia," Working Papers 610, Economic Research Forum, revised 08 Jan 2011.

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