IDEAS home Printed from https://ideas.repec.org/a/ris/buecqu/0008.html
   My bibliography  Save this article

Currency Devaluation and Trade Balance Nexus: A Test of Marshall-Lerner Condition in Nigeria

Author

Listed:
  • Are, Olasubomi

    (Small Business & Informal Economic Research Group, Department of Economics, University of Lagos Akoka, Akoka Lagos)

Abstract

Devaluation on the trade balance in recent times emerged as a vital policy issue in Nigeria due to the recent economic crisis. This paper examines the nexus between devaluation and Nigeria’s trade balance by empirically investigating the Marshall-Lerner condition using annual data covering the period of 1986-2015. It also examines the dynamics of the relation between Nigeria’s trade balance and the real exchange rate. The Engel-Granger OLS-based Cointegration technique and the Error Correction Mechanism (ECM) modelling technique were employed to conduct these analyses. Findings suggest that the Marshall-Lerner condition is not satisfied in Nigeria and that real exchange rate has no significant effect on the trade balance both in the long-run and short-run. Also, findings revealed that income effects dominate price effects on trade in Nigeria.

Suggested Citation

  • Are, Olasubomi, 2019. "Currency Devaluation and Trade Balance Nexus: A Test of Marshall-Lerner Condition in Nigeria," BizEcons Quarterly, Strides Educational Foundation, vol. 4, pages 23-43.
    • Handle: RePEc:ris:buecqu:0008
    as

    Download full text from publisher

    File URL: http://bequarterly.rysearch.com/wp-content/uploads/2019/06/Published-Are.pdf
    File Function: Full text
    Download Restriction: olaniyievans@gmail.com
    ---><---

    As the access to this document is restricted, you may want to search for a different version of it.

    References listed on IDEAS

    as
    1. Anonymous, 1952. "International Monetary Fund," International Organization, Cambridge University Press, vol. 6(3), pages 446-447, August.
    2. 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.
    3. Morris Goldstein & Mohsin S. Khan, 2017. "The Supply and Demand for Exports: A Simultaneous Approach," World Scientific Book Chapters, in: TRADE CURRENCIES AND FINANCE, chapter 2, pages 83-104, World Scientific Publishing Co. Pte. Ltd..
    4. Anonymous, 1952. "International Monetary Fund," International Organization, Cambridge University Press, vol. 6(4), pages 644-646, November.
    5. Anonymous, 1952. "International Monetary Fund," International Organization, Cambridge University Press, vol. 6(1), pages 121-125, February.
    6. Miles, Marc A, 1979. "The Effects of Devaluation on the Trade Balance and the Balance of Payments: Some New Results," Journal of Political Economy, University of Chicago Press, vol. 87(3), pages 600-620, June.
    7. Nkenchor Neville Igue & Toyin Segun Ogunleye, 2014. "Impact of Real Exchange Rate on Trade Balance in Nigeria," African Development Review, African Development Bank, vol. 26(2), pages 347-358, June.
    8. World Bank, 2016. "World Development Indicators 2016," World Bank Publications - Books, The World Bank Group, number 23969, December.
    9. Mohsen Bahmani-Oskooee, 1998. "Cointegration Approach to Estimate the Long-Run Trade Elasticities in LDCs," International Economic Journal, Taylor & Francis Journals, vol. 12(3), pages 89-96.
    10. Boyd, Derick & Caporale, Gugielmo Maria & Smith, Ron, 2001. "Real Exchange Rate Effects on the Balance of Trade: Cointegration and the Marshall-Lerner Condition," International Journal of Finance & Economics, John Wiley & Sons, Ltd., vol. 6(3), pages 187-200, July.
    11. Mohsen Bahmani & Hanafiah Harvey & Scott W. Hegerty, 2013. "Empirical tests of the Marshall-Lerner condition: a literature review," Journal of Economic Studies, Emerald Group Publishing, vol. 40(3), pages 411-443, May.
    12. Evans, Olaniyi & Adeniji, Sesan & Nwaogwugwu, Isaac & Kelikume, Ikechukwu & Dakare, Olamitunji & Oke, Olubode, 2018. "The relative effect of monetary and fiscal policy on economic development in Africa: a GMM approach to the St. Louis equation," BizEcons Quarterly, Strides Educational Foundation, vol. 2, pages 3-23.
    Full references (including those not matched with items on IDEAS)

    Most related items

    These are the items that most often cite the same works as this one and are cited by the same works as this one.
    1. Nkenchor Neville Igue & Toyin Segun Ogunleye, 2014. "Impact of Real Exchange Rate on Trade Balance in Nigeria," African Development Review, African Development Bank, vol. 26(2), pages 347-358, June.
    2. Tarlok Singh, 2007. "Intertemporal Optimizing Models Of Trade And Current Account Balance: A Survey," Journal of Economic Surveys, Wiley Blackwell, vol. 21(1), pages 25-64, February.
    3. Alhaji Jibrilla Aliyu & Shehu Mohammed Tijjani & Caroline Elliott, 2015. "Asymmetric cointegration between exchange rate and trade balance in Nigeria," Cogent Economics & Finance, Taylor & Francis Journals, vol. 3(1), pages 1045213-104, December.
    4. 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.
    5. Shah, Anwar & Majeed, Muhammad Tariq, 2014. "Real Exchange Rate and Trade Balance in Pakistan: An ARDL Co-integration Approach," MPRA Paper 57674, University Library of Munich, Germany.
    6. Frenkel, Jacob A. & Mussa, Michael L., 1985. "Asset markets, exchange rates and the balance of payments," Handbook of International Economics, in: R. W. Jones & P. B. Kenen (ed.), Handbook of International Economics, edition 1, volume 2, chapter 14, pages 679-747, Elsevier.
    7. Shahbaz, Muhammad & Jalil, Abdul & Islam, Faridul, 2010. "Real Exchange Rate Changes and Trade Balance in Pakistan: A Revisit," MPRA Paper 27631, University Library of Munich, Germany.
    8. 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.
    9. Nabeela KOUSAR* & Muhammad Rizwan YASEEN** & Imran QAISER***, 2017. "THE S-CURVES DYNAMICS OF TRADE: The Case Study of Pakistan," Pakistan Journal of Applied Economics, Applied Economics Research Centre, vol. 27(1), pages 121-138.
    10. Tiwari, Aviral & Shahbaz, Muhammad, 2011. "India's trade with USA and her trade balance: An empirical analysis," MPRA Paper 29023, University Library of Munich, Germany.
    11. Mohsen Bahmani-Oskooee & Charikleia Economidou & Gour Goswami, 2006. "Bilateral J-curve between the UK vis-a-vis her major trading partners," Applied Economics, Taylor & Francis Journals, vol. 38(8), pages 879-888.
    12. Yashodha Warunie Senadheera, 2015. "Impact of the Effective Exchange Rate on the Trade Balance of Sri Lanka: Evidence from 2000 to 2013," Margin: The Journal of Applied Economic Research, National Council of Applied Economic Research, vol. 9(2), pages 93-108, May.
    13. Godwin Kamugisha & Joe Eyong Assoua, 2020. "Effects of a Devaluation on Trade Balance in Uganda: An ARDL Cointegration Approach," International Journal of Economics and Finance, Canadian Center of Science and Education, vol. 12(7), pages 1-42, July.
    14. Akpansung, Aniekan O., 2021. "Impact of Real Effective Exchange Rates on Balance of Payments: Empirical Evidence from Nigeria," African Journal of Economic Review, African Journal of Economic Review, vol. 9(4), September.
    15. Bernard Njindan Iyke & Sin‐Yu Ho, 2020. "Consumption and exchange rate uncertainty: Evidence from selected Asian countries," The World Economy, Wiley Blackwell, vol. 43(9), pages 2437-2462, September.
    16. Grant M. Scobie & Paul R. Johnson, 1974. "Protection and Exchange Rate: An Analysis of the New Zealand Foreign Exchange Market," The Economic Record, The Economic Society of Australia, vol. 50(4), pages 534-554, December.
    17. Syed Abul Basher & Stefano Fachin, 2014. "Investigating long-run demand for broad money in the Gulf Arab countries," Middle East Development Journal, Taylor & Francis Journals, vol. 6(2), pages 199-214, July.
    18. Muhammad Shahbaz & Mohammad Mafizur Rahman, 2012. "Does Nominal Devaluation Improve Income Distribution? Evidence from Bangladesh," South Asian Survey, , vol. 19(1), pages 61-77, March.
    19. Mahmood, Haider & Alkhateeb, Tarek Tawfik Yousef & Ahmed, Nawaz, 2017. "Impact of devaluation on Saudi oil exports: The J-Curve analysis," MPRA Paper 109454, University Library of Munich, Germany.
    20. Muqun Li & Wei Liu & Shunfeng Song, 2010. "Export Relationships among China, Japan, and South Korea," Review of Development Economics, Wiley Blackwell, vol. 14(s1), pages 547-562, August.

    More about this item

    Keywords

    Exchange rate; Currency devaluation; Trade balance;
    All these keywords.

    JEL classification:

    • B41 - Schools of Economic Thought and Methodology - - Economic Methodology - - - Economic Methodology
    • C21 - Mathematical and Quantitative Methods - - Single Equation Models; Single Variables - - - Cross-Sectional Models; Spatial Models; Treatment Effect Models
    • F31 - International Economics - - International Finance - - - Foreign Exchange

    Statistics

    Access and download statistics

    Corrections

    All material on this site has been provided by the respective publishers and authors. You can help correct errors and omissions. When requesting a correction, please mention this item's handle: RePEc:ris:buecqu:0008. See general information about how to correct material in RePEc.

    If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.

    If CitEc recognized a bibliographic reference but did not link an item in RePEc to it, you can help with this form .

    If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your RePEc Author Service profile, as there may be some citations waiting for confirmation.

    For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: Olaniyi Evans (email available below). General contact details of provider: https://bizecons.5profz.com/ .

    Please note that corrections may take a couple of weeks to filter through the various RePEc services.

    IDEAS is a RePEc service. RePEc uses bibliographic data supplied by the respective publishers.