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Global shocks and trade response of a commodity exporter small open economy: Terms of Trade, J-Curve and the Marshall-Lerner Condition

Author

Listed:
  • Marcelo Randolfo da Costa Januário

    (LCA Consultores)

  • Mauro Sayar Ferreira

    (UFMG)

Abstract

We evaluate the presence of the J-curve and the Marshall-Lerner condition after recognizing that terms of trade respond endogenously to global demand and supply shocks, which we identify from a structural VAR estimated with Bayesian techniques for the Brazilian economy, a small open economy with a strong commodity sector. The J-curve is not observed for total trade, capital goods, or consumption goods, but it is verified for fuel, which Brazil exports and imports. The Marshall-Lerner condition is mostly verified, but the volume exported tends not to behave as expected considering its relation to terms of trade, since global income effect plays a major role for determining the quantum exported. The volume imported reacts as expected based on its relation to terms of trade and domestic GDP, with the last appearing to play the most prominent role. The expansion in the exported volume of capital and consumption goods following an improvement in terms of trade runs against the presence of the Dutch disease, at least in the business cycle frequency.

Suggested Citation

  • Marcelo Randolfo da Costa Januário & Mauro Sayar Ferreira, 2021. "Global shocks and trade response of a commodity exporter small open economy: Terms of Trade, J-Curve and the Marshall-Lerner Condition," Textos para Discussão Cedeplar-UFMG 635, Cedeplar, Universidade Federal de Minas Gerais.
    • Handle: RePEc:cdp:texdis:td635
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    References listed on IDEAS

    as
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    More about this item

    Keywords

    J-curve; Marshall-Lerner condition; terms of trade; global shocks; SVAR;
    All these keywords.

    JEL classification:

    • F14 - International Economics - - Trade - - - Empirical Studies of Trade
    • F41 - International Economics - - Macroeconomic Aspects of International Trade and Finance - - - Open Economy Macroeconomics
    • F62 - International Economics - - Economic Impacts of Globalization - - - Macroeconomic Impacts

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