Devaluation and Trade Balance in Latin American Countries
Zbornik radova Ekonomskog fakulteta u Rijeci, časopis za ekonomsku teoriju i praksu - Proceedings of Rijeka Faculty of Economics, Journal of Economics and Business, Vol. 27, No. 1, 2009, pp. 115-128
14 Pages Posted: 22 May 2013
Date Written: June 29, 2009
The aim of this paper is to examine effectiveness of devaluation on the trade balance in four countries: Argentina, Brazil, Mexico and Peru. We use the Johansen-Juselius cointegration test and impulse response function to estimate the long-run and short-run effects of devaluation on the trade balance. The estimated results suggest that depreciation improve the trade balance in the long run for the case of Argentina and Peru, and in the short-run there has been J-curve in Argentina and Peru. In addition, the cointegration is found among the four variables (trade balance, domestic income, foreign incomes and real exchange rate) in the case of Argentina and Peru. The results also indicate that there is no cointegration relationship between these variables for Brazil and Mexico. The conclusion of the paper is that the evidence of the J-curve pattern was found for Argentina and Peru only.
Keywords: trade balance, J-Curve, Marshal-Lerner condition, cointegration, impulse response analysis, Latin America
JEL Classification: F30, F32, F41
Suggested Citation: Suggested Citation