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The J-Curve: Evidence from Fiji

  • Paresh Kumar Narayan
  • Seema Narayan

This article provides new evidence on both long run and short-run determinants of trade balance for Fiji and investigates evidence of J-curve adjustment behaviour in the aftermath of a devaluation. We adopt a partial reduced form model that models the real trade balance directly as a function of the real exchange rate and real domestic and foreign incomes. Cointegration analysis is based on a recently developed autoregressive distributed lag approach—shown to provide robust results in finite samples. The long run elasticities are also estimated using a dynamic ordinary least squares approach and the Fully Modified Ordinary Least Squares (FM-OLS) approach. Amongst our key results we find that there is a long-run relationship between trade balance and its determinants. There is evidence of the J-curve pattern; growth in domestic income affects Fiji's trade balance adversely while foreign income improves it.

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Article provided by Taylor & Francis Journals in its journal International Review of Applied Economics.

Volume (Year): 18 (2004)
Issue (Month): 3 ()
Pages: 369-380

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Handle: RePEc:taf:irapec:v:18:y:2004:i:3:p:369-380
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