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Mexican bilateral trade and the J-curve: An application of the nonlinear ARDL model

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  • Bahmani-Oskooee, Mohsen
  • Halicioglu, Ferda
  • Hegerty, Scott W.

Abstract

Recent advances in time-series and cointegration analysis have allowed for the estimation of the nonlinear effects of currency depreciations on countries’ trade balances. This study examines Mexico’s bilateral trade with 13 trade partners, applying both the linear and the nonlinear versions of the Autoregressive Distributed Lag (ARDL) cointegration and error-correction methodologies, to test whether peso appreciations affect trade differently than do peso depreciations. The linear ARDL model generates significant long-run coefficients for six partners, implying that while peso depreciations improve Mexico’s trade balance with them, peso appreciation hurt it. However, the nonlinear ARDL model finds that peso appreciation hurts Mexico’s trade balance with three additional partners, and that peso depreciation improves it with one additional partner. Additional statistical tests reveal that indeed the effects of peso appreciation are significantly different than effects of peso depreciation, supporting the asymmetric effects of real exchange rate changes.

Suggested Citation

  • Bahmani-Oskooee, Mohsen & Halicioglu, Ferda & Hegerty, Scott W., 2016. "Mexican bilateral trade and the J-curve: An application of the nonlinear ARDL model," Economic Analysis and Policy, Elsevier, vol. 50(C), pages 23-40.
  • Handle: RePEc:eee:ecanpo:v:50:y:2016:i:c:p:23-40
    DOI: 10.1016/j.eap.2016.02.003
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    References listed on IDEAS

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    Cited by:

    1. HALICIOGLU, Ferda & Ketenci, Natalya, 2017. "Testing the Productivity Bias Hypothesis in Middle East Countries," MPRA Paper 83528, University Library of Munich, Germany.
    2. Panagodage Janaka Sampath Fernando & Hasthimuni Nadeeka De Silva & Athula Naranpanawa & Chandika Gunasinghe, 2017. "Revisiting the debt-growth nexus: Empirical evidence from Sri Lanka," Discussion Papers in Economics economics:201706, Griffith University, Department of Accounting, Finance and Economics.
    3. Ferda, HALICIOGLU & Kasim, EREN, 2013. "Testing Twin Deficits and Saving-Investment Nexus in Turkey," MPRA Paper 50098, University Library of Munich, Germany.
    4. repec:ebl:ecbull:eb-17-00238 is not listed on IDEAS
    5. repec:bla:coecpo:v:35:y:2017:i:3:p:472-483 is not listed on IDEAS
    6. Obeng, Camara Kwasi, 2017. "Is the effect of exchange rate volatility on export diversification symmetric or asymmetric? Evidence from Ghana," MPRA Paper 79027, University Library of Munich, Germany.
    7. repec:bla:econpa:v:36:y:2017:i:2:p:198-222 is not listed on IDEAS

    More about this item

    Keywords

    J-curve non-linear ARDL approach; Asymmetric effects; Bilateral trade balance; Mexico;

    JEL classification:

    • F31 - International Economics - - International Finance - - - Foreign Exchange

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