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S-Curve dynamics of trade between U.S. and China

  • Bahmani-Oskooee, Mohsen
  • Ratha, Artatrana

A newly emerging area in international economics looks at the cross-correlation coefficient between past and future values of the trade balance and movement in the current exchange rate as a way of analyzing the response of the trade balance to exchange rate changes. Since the cross-correlation function follows a symmetric pattern, it comes under the heading of the S-Curve. Previous studies have considered the experience of developed and developing countries with the S-Curve, excluding China. In this paper we consider the Chinese experience. We show that when aggregate trade data between China and the U.S. are considered, there is no evidence of the S-Curve. However, when the data are disaggregated by commodity, the S-Curve is supported in almost 50% of the close to 100 industries considered. Furthermore, it appears that commodity types do not have any influence in determining the existence of an S-Curve pattern.

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Article provided by Elsevier in its journal China Economic Review.

Volume (Year): 21 (2010)
Issue (Month): 2 (June)
Pages: 212-223

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Handle: RePEc:eee:chieco:v:21:y:2010:i:2:p:212-223
Contact details of provider: Web page: http://www.elsevier.com/locate/chieco

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  1. Wei Weixian, 1999. "An empirical study of the foreign trade balance in China," Applied Economics Letters, Taylor & Francis Journals, vol. 6(8), pages 485-490.
  2. David K. Backus & Patrick J. Kehoe & Finn E. Kydland, 1992. "Dynamics of the trade balance and the terms of trade: the S-curve," Working Paper 9211, Federal Reserve Bank of Cleveland.
  3. Zhang, Zhaoyong, 1998. "Does Devaluation of the Renminbi Improve China’s Balance of Trade?," Economia Internazionale / International Economics, Camera di Commercio di Genova, vol. 51(3), pages 437-445.
  4. Bahmani-Oskooee, Mohsen & Ratha, Artarana, 2007. "Bilateral S-curve between Japan and her trading partners," Japan and the World Economy, Elsevier, vol. 19(4), pages 483-489, December.
  5. Mohsen Bahmani-Oskooee & Artatrana Ratha, 2007. "The S-curve Dynamics of US Bilateral Trade," Review of International Economics, Wiley Blackwell, vol. 15(2), pages 430-439, 05.
  6. Brada, Josef C & Kutan, Ali M & Zhou, Su, 1993. " China's Exchange Rate and the Balance of Trade," Economic Change and Restructuring, Springer, vol. 26(3), pages 229-42.
  7. 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.
  8. Stephen P. Magee, 1973. "Currency Contracts, Pass-Through, and Devaluation," Brookings Papers on Economic Activity, Economic Studies Program, The Brookings Institution, vol. 4(1), pages 303-325.
  9. Mohsen Bahmani-Oskooee & Yongqing Wang, 2008. "The J-curve: evidence from commodity trade between US and China," Applied Economics, Taylor & Francis Journals, vol. 40(21), pages 2735-2747.
  10. Senhadji, Abdelhak S., 1998. "Dynamics of the trade balance and the terms of trade in LDCs: The S-curve," Journal of International Economics, Elsevier, vol. 46(1), pages 105-131, October.
  11. Mohsen Bahmani-Oskooee & Artatrana Ratha, 2004. "The J-Curve: a literature review," Applied Economics, Taylor & Francis Journals, vol. 36(13), pages 1377-1398.
  12. Paresh Kumar Narayan, 2006. "Examining the relationship between trade balance and exchange rate: the case of China's trade with the USA," Applied Economics Letters, Taylor & Francis Journals, vol. 13(8), pages 507-510.
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