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:
  • Olasubomi Are

    (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

  • Olasubomi Are, 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

    for a different version of it.

    References listed on IDEAS

    as
    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. World Bank, 2016. "World Development Indicators 2016," World Bank Publications - Books, The World Bank Group, number 23969.
    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. 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.
    5. 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.
    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. 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.
    8. 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.
    9. Olaniyi Evans & Sesan Adeniji & Isaac Nwaogwugwu & Ikechukwu Kelikume & Olamitunji Dakare & Olubode Oke, 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. 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.
    2. Nasir, Muhammad Ali & Vo, Xuan Vinh, 2020. "A quarter century of inflation targeting & structural change in exchange rate pass-through: Evidence from the first three movers," Structural Change and Economic Dynamics, Elsevier, vol. 54(C), pages 42-61.
    3. Hafsa Hina, 2020. "Correction of Trade Deficit through Depreciation - A Misdirected Policy: An Empirical Evidence from Pakistan," PIDE-Working Papers 2020:24, Pakistan Institute of Development Economics.
    4. Mohsen Bahmani-Oskooee & Thouraya Hadj Amor & Hanafiah Harvey & Huseyin Karamelikli, 2019. "Is there a J-curve effect in Tunisia’s bilateral trade with her partners? New evidence from asymmetry analysis," Economic Change and Restructuring, Springer, vol. 52(1), pages 1-18, February.
    5. Hafsa Hina, 2021. "What Do We Know of Trade Elasticities?," PIDE Knowledge Brief 2021:30, Pakistan Institute of Development Economics.
    6. 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.
    7. Mohsen Bahmani-Oskooee & Muhammad Ali Nasir, 2020. "Asymmetric J-curve: evidence from industry trade between U.S. and U.K," Applied Economics, Taylor & Francis Journals, vol. 52(25), pages 2679-2693, May.
    8. Suwanhirunkul, Suwijak & Masih, Mansur, 2018. "Exchange rate and trade balance linkage: sectoral evidence from Thailand based on nonlinear ARDL," MPRA Paper 87541, University Library of Munich, Germany.
    9. Bilgin, Cevat, 2020. "Asymmetric Effects of Exchange Rate Changes on Exports: A Sectoral Nonlinear Cointegration Analysis for Turkey," MPRA Paper 101316, University Library of Munich, Germany.
    10. Arize, Augustine C. & Malindretos, John & Igwe, Emmanuel U., 2017. "Do exchange rate changes improve the trade balance: An asymmetric nonlinear cointegration approach," International Review of Economics & Finance, Elsevier, vol. 49(C), pages 313-326.
    11. A. Kim, 2009. "An empirical analysis of Korea's trade imbalances with the US and Japan," Journal of the Asia Pacific Economy, Taylor & Francis Journals, vol. 14(3), pages 211-226.
    12. Ganesh S. Mani & Srivyal Vuyyuri, 2003. "Revisiting the Relationship between Real Exchange Rate and Trade Balances," Economic Studies journal, Bulgarian Academy of Sciences - Economic Research Institute, issue 2, pages 34-44.
    13. Adznan, Syaima & Masih, Mansur, 2018. "Exchange rate and trade balance linkage: evidence from Malaysia based on ARDL and NARDL," MPRA Paper 91509, University Library of Munich, Germany.
    14. 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.
    15. Mohsen Bahmani-Oskooee & Hanafiah Harvey, 2018. "Is There J-Curve Effect In The Commodity Trade Of Singapore With Malaysia? An Empirical Study," The Singapore Economic Review (SER), World Scientific Publishing Co. Pte. Ltd., vol. 63(03), pages 567-591, June.
    16. Nektarios A. Michail, 2018. "Estimating a Bilateral J‐curve between the UK and the Euro Area," Manchester School, University of Manchester, vol. 86(6), pages 757-769, December.
    17. Mallory Mindy & Lence Sergio H., 2012. "Testing for Cointegration in the Presence of Moving Average Errors," Journal of Time Series Econometrics, De Gruyter, vol. 4(2), pages 1-68, November.
    18. Komain Jiranyakul, 2013. "Exchange Rate Uncertainty and Import Demand of Thailand," Asian Economic and Financial Review, Asian Economic and Social Society, vol. 3(10), pages 1269-1280, October.
    19. Gan-Ochir Doojav, 2018. "The Effect of Real Exchange Rate on Trade Balance in a Resource-Rich Economy: The Case of Mongolia," Foreign Trade Review, , vol. 53(4), pages 211-224, November.
    20. Dumitriu, Ramona & Stefanescu, Razvan, 2013. "Utilizarea cursurilor valutare drept ancore nominale antiinflaţioniste [The use of exchange rates as nominal anchors]," MPRA Paper 52415, University Library of Munich, Germany.

    More about this item

    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.