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The S-curve Behaviour of the Trade Balance

Author

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  • Abdurrahman Korkmaz
  • Mustafa Erhan Bilman

Abstract

A stepwise testing procedure based on the causality theory in statistics is suggested in this study to test for the S-curve hypothesis which puts forward that the trade balance is uniformly countercyclical and negatively correlated, in general, with current and future movements in terms of trade, but positively correlated with past movements. S-curve hypothesis is investigated in this study by relying on two pillars. Firstly, the existence of an S-shaped pattern is investigated at both industry and aggregate levels and, if any, statistical significance of this pattern is tested. Having detected an S-curve pattern, secondly the two distinct processes made up of positive and negative cross-correlation coefficients that lead to the S-shaped behaviour are evaluated separately and their statistical significance is tested. Thus, the second stage makes it possible to perform a robustness check for the findings from the first stage. By applying this procedure to Turkish trade data at both industry and aggregate levels for the period 2003:1–2011:4, S-curve dynamics have been found in only one out of nine industries (i.e., manufactured goods classified chiefly by material). The findings also suggest that the aggregate data do not exhibit an S-curve behaviour.

Suggested Citation

  • Abdurrahman Korkmaz & Mustafa Erhan Bilman, 2017. "The S-curve Behaviour of the Trade Balance," Foreign Trade Review, , vol. 52(1), pages 1-14, February.
    • Handle: RePEc:sae:fortra:v:52:y:2017:i:1:p:1-14
    DOI: 10.1177/0015732516650826
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    References listed on IDEAS

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    Cited by:

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    5. Dene T. Hurley & Nikolaos Papanikolaou, 2018. "An Investigation of China‐U.S. Bilateral Trade and Exchange Rate Changes Using the Autoregressive Distributed Lag Model," Economic Papers, The Economic Society of Australia, vol. 37(2), pages 162-179, June.

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    JEL classification:

    • C18 - Mathematical and Quantitative Methods - - Econometric and Statistical Methods and Methodology: General - - - Methodolical Issues: General
    • C22 - Mathematical and Quantitative Methods - - Single Equation Models; Single Variables - - - Time-Series Models; Dynamic Quantile Regressions; Dynamic Treatment Effect Models; Diffusion Processes
    • F14 - International Economics - - Trade - - - Empirical Studies of Trade

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