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Exchange Rates and the Trade Balance for Dynamic Asian Economies—Does the J-Curve Exist for Singapore, Malaysia, and Korea?

  • Peter Wilson

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    The purpose of this article is to examine the relationship between the real trade balance and the real exchange rate for bilateral trade in merchandise goods between Singapore, Korea, and Malaysia and the USA and Japan on a quarterly basis over the period 1970 to 1996 using the partial reduced form model of Rose and Yellen (1989) derived from the two-country imperfect substitutes model. With the exception of Korean trade with the USA, and in line with recent work using a similar methodology, our findings suggest that the real exchange rate does not have a significant impact on the real trade balance, and for Singapore and Malaysia we can find no persuasive evidence for J-curves. For Korea, however, the data were consistent with some J-curve effects with respect to both Japan and the USA. Moreover, it is possible that for Korea these effects were being masked or muted by “small†country pricing of exports in foreign currency, but there was no evidence that imports subsequently fell as the lag length on the real exchange rate increased, which would be required to support a strict interpretation of the J-curve. Copyright Kluwer Academic Publishers 2001

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    File URL: http://hdl.handle.net/10.1023/A:1017982901034
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    Article provided by Springer in its journal Open Economies Review.

    Volume (Year): 12 (2001)
    Issue (Month): 4 (October)
    Pages: 389-413

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    Handle: RePEc:kap:openec:v:12:y:2001:i:4:p:389-413
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    1. James G. MacKinnon, 1992. "Approximate Asymptotic Distribution Functions for Unit Roots and Cointegration Tests," Working Papers 861, Queen's University, Department of Economics.
    2. Rose, Andrew K. & Yellen, Janet L., 1989. "Is there a J-curve?," Journal of Monetary Economics, Elsevier, vol. 24(1), pages 53-68, July.
    3. Goldstein, Morris & Khan, Mohsin S., 1985. "Income and price effects in foreign trade," Handbook of International Economics, in: R. W. Jones & P. B. Kenen (ed.), Handbook of International Economics, edition 1, volume 2, chapter 20, pages 1041-1105 Elsevier.
    4. Pantula, Sastry G & Gonzalez-Farias, Graciela & Fuller, Wayne A, 1994. "A Comparison of Unit-Root Test Criteria," Journal of Business & Economic Statistics, American Statistical Association, vol. 12(4), pages 449-59, October.
    5. 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.
    6. Noland, Marcus, 1989. "Japanese Trade Elasticities and the J-Curve," The Review of Economics and Statistics, MIT Press, vol. 71(1), pages 175-79, February.
    7. Menon, Jayant, 1995. " Exchange Rate Pass-Through," Journal of Economic Surveys, Wiley Blackwell, vol. 9(2), pages 197-231, June.
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