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Competitive devaluations and the trade balance in less developed countries: An empirical study of Latin American countries

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  • Rodrigo Costamagna

Abstract

Policymakers in less developed countries (LDCs) usually support competitive devaluations to improve the trade balance (TB). In this paper, we estimate the effects of appreciated and depreciated real exchange rates (RER) in the TB of Argentina and Brazil during the period, 1990ó2010 using co-integration tests for non-stationary data and vector error correction models (VECM). The estimations confirmed the existence of a long-term relationship among the TB and the RER and foreign and domestic incomes for the countries during opposite RER policies. Based on our estimations, the MarshallóLerner condition held during periods of more flexible and depreciated RER, and the estimation of the general impulse response functions demonstrated that devaluations in both countries did not follow a J-curve pattern in the short term.

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  • Rodrigo Costamagna, 2014. "Competitive devaluations and the trade balance in less developed countries: An empirical study of Latin American countries," Economic Analysis and Policy, Elsevier, vol. 44(4), pages 266-278.
    • Handle: RePEc:eee:ecanpo:v:44:y:2014:i:3:p:266-278
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    Cited by:

    1. Martin Gürtler, 2019. "Dynamic analysis of trade balance behavior in a small open economy: the J-curve phenomenon and the Czech economy," Empirical Economics, Springer, vol. 56(2), pages 469-497, February.
    2. Guglielmo Maria Caporale & Rodrigo Costamagna & Gustavo Rossini, 2016. "Competitive Devaluations in Commodity-Based Economies: Colombia and the Pacific Alliance Group," CESifo Working Paper Series 5907, CESifo.
    3. Trofimov, Ivan D., 2020. "Real Exchange Rate and the Dynamics of Services Trade Balance in the UK: A Linear and Non-linear ARDL Analysis," MPRA Paper 106703, University Library of Munich, Germany.
    4. Boubellouta Bilal & Muhammad Shahbaz, 2021. "Comparing the Relationship Between Nominal and Real Effective Exchange Rates During the Last Two Devaluations in Algeria," Global Business Review, International Management Institute, vol. 22(6), pages 1421-1440, December.

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