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Testing J-curve hypothesis and analysing the effect of exchange rate volatility on the balance of trade in India

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  • Tarlok Singh

Abstract

This study estimates the balance of trade model similar to Rose (1991) to test the J-curve hypothesis and analyse the effect of conditional exchange rate volatility on the balance of trade in India. The model is estimated on quarterly data from 1975:02 to 1996:03 and the exchange rate is measured alternatively in terms of the trade and export weighted real effective exchange rate. The model variables are tied together in a long run equilibrium relationship. The study does not find any evidence for the presence of the J-curve effect in the balance of trade. The study finds the presence of weak ARCH but strong GARCH effects in the exchange rate series. But this exchange rate volatility does not play any significant role in affecting the balance of trade in India. Copyright Springer-Verlag 2004

Suggested Citation

  • Tarlok Singh, 2004. "Testing J-curve hypothesis and analysing the effect of exchange rate volatility on the balance of trade in India," Empirical Economics, Springer, vol. 29(2), pages 227-245, May.
    • Handle: RePEc:spr:empeco:v:29:y:2004:i:2:p:227-245
    DOI: 10.1007/s00181-003-0162-8
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    Citations

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    Cited by:

    1. Homamul Islam, 2021. "Evaluating the Persistence of j Curve Phenomenon in the Bilateral Trade between Bangladesh and USA: The ARDL Bounds Testing Approach and Granger Causality Analysis," International Journal of Economics and Financial Research, Academic Research Publishing Group, vol. 7(2), pages 74-81, 06-2021.
    2. Yaya Keho, 2021. "Real Exchange Rate and Trade Balance Dynamics in Cote d Ivoire," International Journal of Economics and Financial Issues, Econjournals, vol. 11(1), pages 61-70.
    3. Linda Akoto & Daniel Sakyi, 2019. "Empirical Analysis of the Determinants of Trade Balance in Post-liberalization Ghana," Foreign Trade Review, , vol. 54(3), pages 177-205, August.
    4. haider, salman & Adil, Masudul hasan, 2017. "An Analysis of Impact of Exchange Rate Volatility on the Indian Manufacturing Exports," MPRA Paper 87839, University Library of Munich, Germany, revised 10 Nov 2017.
    5. Kyophilavong, Phouphet & Shahbaz, Muhammad & Uddin, Gazi Salah, 2013. "Does J-curve phenomenon exist in case of Laos? An ARDL approach," Economic Modelling, Elsevier, vol. 35(C), pages 833-839.
    6. Vikas Gautam & Suresh K G & Aviral Kumar Tiwari, 2013. "Impact Of Real Exchange Rates On Exports Of Agricultural Commodities: Evidence From India," Review of Economic and Business Studies, Alexandru Ioan Cuza University, Faculty of Economics and Business Administration, issue 11, pages 46-58, June.
    7. Tarlok Singh, 2015. "Sustainability of current account deficits in India: an intertemporal perspective," Applied Economics, Taylor & Francis Journals, vol. 47(46), pages 4934-4951, October.
    8. Ho Hoang Gia Bao & Hoang Phong Le, 2022. "The Roles of Vehicle Currency and Real Effective Exchange Rates in the Trade of Every ASEAN Member With the EU-28," SAGE Open, , vol. 12(2), pages 21582440221, April.
    9. Mohammad Naim Azimi & Mohammad Musa Shafiq, 2022. "The J-curve phenomenon in Afghanistan and its major trading partners: evidence from a non-linear ARDL approach," SN Business & Economics, Springer, vol. 2(7), pages 1-28, July.
    10. Yi‐Bin Chiu & Chia‐Hung Sun, 2009. "Economic interdependence and bilateral trade imbalance across the Taiwan Strait," Journal of Economic Studies, Emerald Group Publishing Limited, vol. 36(4), pages 411-432, September.
    11. Alper YILMAZ, 2024. "Bilateral J-Curve Between Türkiye and Its Major Non-EU Trading Partners: Evidence from Both Linear and Non-Linear Approach," Sosyoekonomi Journal, Sosyoekonomi Society, issue 32(60).

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