Nothing Special   »   [go: up one dir, main page]
IDEAS home Printed from https://ideas.repec.org/p/pra/mprapa/106704.html
   My bibliography  Save this paper

Is There a J-Curve Effect in the Services Trade in Canada? A Panel Data Analysis

Author

Listed:
  • Trofimov, Ivan D.
Abstract
The effects of the real exchange rate changes on the sectoral trade balance (as opposed to the balance of aggregate trade) have received limited consideration in the empirical studies. In this paper we focus on services trade and examine the dynamics of Canada’s bilateral trade balance in services with its 53 major trading partners during 1990-2018. To account for slope heterogeneity and cross-sectional dependence we apply mean group (MG), pooled mean group (PMG), common correlated effects mean group (CCEMG), augmented mean group (AMG) estimators to the trade balance equation, alongside the dynamic fixed effects (DFE) estimator. The results provide strong evidence of a short-run deterioration and a long-term improvement of the services trade balance following depreciation in an aggregate panel as well as sub-panels, hence supporting the J-curve effect hypothesis and satisfying Marshall-Lerner condition. At the level of individual cross-sections, the evidence was mixed: a number of economies experienced long-term improvement of the trade balance, albeit without short-term deterioration.

Suggested Citation

  • Trofimov, Ivan D., 2020. "Is There a J-Curve Effect in the Services Trade in Canada? A Panel Data Analysis," MPRA Paper 106704, University Library of Munich, Germany.
    • Handle: RePEc:pra:mprapa:106704
    as

    Download full text from publisher

    File URL: https://mpra.ub.uni-muenchen.de/106704/1/MPRA_paper_106704.pdf
    File Function: original version
    Download Restriction: no
    ---><---

    References listed on IDEAS

    as
    1. Helen B. Junz & Rudolf R. Rhomberg, 1973. "Price competitiveness in export trade among industrial countries," International Finance Discussion Papers 22, Board of Governors of the Federal Reserve System (U.S.).
    2. Pedroni, Peter, 2004. "Panel Cointegration: Asymptotic And Finite Sample Properties Of Pooled Time Series Tests With An Application To The Ppp Hypothesis," Econometric Theory, Cambridge University Press, vol. 20(3), pages 597-625, June.
    3. Junz, Helen B & Rhomberg, Rudolf R, 1973. "Price Competitiveness in Export Trade Among Industrial Countries," American Economic Review, American Economic Association, vol. 63(2), pages 412-418, May.
    4. Barras, Richard, 1993. "Interactive innovation in financial and business services: The vanguard of the service revolution," Research Policy, Elsevier, vol. 22(2), pages 101-102, April.
    5. Mohsen Bahmani-Oskooee & Taggert Brooks, 1999. "Bilateral J-Curve between U.S. and her trading partners," Review of World Economics (Weltwirtschaftliches Archiv), Springer;Institut für Weltwirtschaft (Kiel Institute for the World Economy), vol. 135(1), pages 156-165, March.
    6. Josef Brada & Ali Kutan & Su Zhou, 1997. "The exchange rate and the balance of trade: The Turkish experience," Journal of Development Studies, Taylor & Francis Journals, vol. 33(5), pages 675-692.
    7. M. Hashem Pesaran, 2021. "General diagnostic tests for cross-sectional dependence in panels," Empirical Economics, Springer, vol. 60(1), pages 13-50, January.
    8. Kapetanios, G. & Pesaran, M. Hashem & Yamagata, T., 2011. "Panels with non-stationary multifactor error structures," Journal of Econometrics, Elsevier, vol. 160(2), pages 326-348, February.
    9. Gupta-Kapoor Anju & Ramakrishnan Uma, 1999. "Is There A J-Curve? A New Estimation for Japan," International Economic Journal, Taylor & Francis Journals, vol. 13(4), pages 71-79.
    10. Mohsen Bahmani-Oskooee & Janardhanan Alse, 1994. "Short-Run versus Long-Run Effects of Devaluation: Error-Correction Modeling and Cointegration," Eastern Economic Journal, Eastern Economic Association, vol. 20(4), pages 453-464, Fall.
    11. Bahmani-Oskooee, Mohsen & Aftab, Muhammad, 2018. "Asymmetric effects of exchange rate changes on the Malaysia-China commodity trade," Economic Systems, Elsevier, vol. 42(3), pages 470-486.
    12. Joakim Westerlund, 2007. "Testing for Error Correction in Panel Data," Oxford Bulletin of Economics and Statistics, Department of Economics, University of Oxford, vol. 69(6), pages 709-748, December.
    13. K. Alec Chrystal & Geoffrey E. Wood, 1988. "Are trade deficits a problem?," Review, Federal Reserve Bank of St. Louis, issue Jan, pages 3-11.
    14. Kao, Chihwa, 1999. "Spurious regression and residual-based tests for cointegration in panel data," Journal of Econometrics, Elsevier, vol. 90(1), pages 1-44, May.
    15. Im, Kyung So & Pesaran, M. Hashem & Shin, Yongcheol, 2003. "Testing for unit roots in heterogeneous panels," Journal of Econometrics, Elsevier, vol. 115(1), pages 53-74, July.
    16. William A. Niskanen, 1988. "The Uneasy Relation between the Budget and Trade Deficits," Cato Journal, Cato Journal, Cato Institute, vol. 8(2), pages 507-532, Fall.
    17. M. Hashem Pesaran, 2015. "Testing Weak Cross-Sectional Dependence in Large Panels," Econometric Reviews, Taylor & Francis Journals, vol. 34(6-10), pages 1089-1117, December.
    18. Stephen P. Magee, 1973. "Currency Contracts, Pass-Through, and Devaluation," Brookings Papers on Economic Activity, Economic Studies Program, The Brookings Institution, vol. 4(1), pages 303-325.
    19. Chudik, Alexander & Pesaran, M. Hashem, 2015. "Common correlated effects estimation of heterogeneous dynamic panel data models with weakly exogenous regressors," Journal of Econometrics, Elsevier, vol. 188(2), pages 393-420.
    20. repec:bla:obuest:v:61:y:1999:i:0:p:631-52 is not listed on IDEAS
    21. Francis Teal & Markus Eberhardt, 2010. "Productivity Analysis in Global Manufacturing Production," Economics Series Working Papers 515, University of Oxford, Department of Economics.
    22. Martin S. Feldstein, 1986. "The Budget Deficit and the Dollar," NBER Chapters, in: NBER Macroeconomics Annual 1986, Volume 1, pages 355-409, National Bureau of Economic Research, Inc.
    23. M. Hashem Pesaran, 2006. "Estimation and Inference in Large Heterogeneous Panels with a Multifactor Error Structure," Econometrica, Econometric Society, vol. 74(4), pages 967-1012, July.
    24. Choi, In, 2001. "Unit root tests for panel data," Journal of International Money and Finance, Elsevier, vol. 20(2), pages 249-272, April.
    25. Moffett, Michael H., 1989. "The J-curve revisited: an empirical examination for the United States," Journal of International Money and Finance, Elsevier, vol. 8(3), pages 425-444, September.
    26. Eberhardt, Markus & Teal, Francis, 2008. "Modeling technology and technological change in manufacturing: how do countries differ?," MPRA Paper 10690, University Library of Munich, Germany.
    27. Lee, Jaewoo & Chinn, Menzie D., 2006. "Current account and real exchange rate dynamics in the G7 countries," Journal of International Money and Finance, Elsevier, vol. 25(2), pages 257-274, March.
    28. Rose, Andrew K., 1991. "The role of exchange rates in a popular model of international trade : Does the 'Marshall-Lerner' condition hold?," Journal of International Economics, Elsevier, vol. 30(3-4), pages 301-316, May.
    29. Mohsen Bahmani-Oskooee & Gour Goswami & Bidyut Kumar Talukdar, 2008. "The bilateral J-curve: Canada versus her 20 trading partners," International Review of Applied Economics, Taylor & Francis Journals, vol. 22(1), pages 93-104.
    30. Mohsen Bahmani-Oskooee & Muhammad Aftab, 2019. "Malaysia-Japan Commodity Trade and Asymmetric Effects of Exchange Rate Changes," Frontiers of Economics in China-Selected Publications from Chinese Universities, Higher Education Press, vol. 14(2), pages 220-263, June.
    31. Bahmani-Oskooee Mohsen & Harvey Hanafiah, 2017. "The Asymmetric Effects of Exchange Rate Changes on the Trade Balance of Singapore," Global Economy Journal, De Gruyter, vol. 17(4), pages 1-11, December.
    32. Cheng, Ka Ming, 2020. "Currency devaluation and trade balance: Evidence from the US services trade," Journal of Policy Modeling, Elsevier, vol. 42(1), pages 20-37.
    33. Gylfason, Thorvaldur & Risager, Ole, 1984. "Does devaluation improve the current account?," European Economic Review, Elsevier, vol. 25(1), pages 37-64, June.
    34. Pesaran, M. Hashem & Smith, Ron, 1995. "Estimating long-run relationships from dynamic heterogeneous panels," Journal of Econometrics, Elsevier, vol. 68(1), pages 79-113, July.
    35. Mohsen Bahmani‐Oskooee & Yomgqing Wang, 2007. "The J‐Curve At The Industry Level: Evidence From Trade Between The Us And Australia," Australian Economic Papers, Wiley Blackwell, vol. 46(4), pages 315-328, December.
    36. M. Hashem Pesaran, 2007. "A simple panel unit root test in the presence of cross-section dependence," Journal of Applied Econometrics, John Wiley & Sons, Ltd., vol. 22(2), pages 265-312.
    37. Lal, Anil K. & Lowinger, Thomas C., 2002. "The J-Curve: Evidence from East Asia," Journal of Economic Integration, Center for Economic Integration, Sejong University, vol. 17, pages 397-415.
    38. Rose, Andrew K. & Yellen, Janet L., 1989. "Is there a J-curve?," Journal of Monetary Economics, Elsevier, vol. 24(1), pages 53-68, July.
    39. Demirden, Tuvana & Pastine, Ivan, 1995. "Flexible exchange rates and the J-curve: An alternative approach," Economics Letters, Elsevier, vol. 48(3-4), pages 373-377, June.
    40. Kremers, Jeroen J M & Ericsson, Neil R & Dolado, Juan J, 1992. "The Power of Cointegration Tests," Oxford Bulletin of Economics and Statistics, Department of Economics, University of Oxford, vol. 54(3), pages 325-348, August.
    41. Mohsen Bahmani-Oskooee & Muhammad Aftab, 2017. "Asymmetric effects of exchange rate changes on the Malaysia-EU trade: evidence from industry data," Empirica, Springer;Austrian Institute for Economic Research;Austrian Economic Association, vol. 44(2), pages 339-365, May.
    42. Kanta Marwah & Lawrence R. Klein, 1996. "Estimation of J-Curves: United States and Canada," Canadian Journal of Economics, Canadian Economics Association, vol. 29(3), pages 523-539, August.
    43. Mohsen Bahmani-Oskooee & Marzieh Bolhasani, 2008. "The J-Curve: Evidence from commodity trade between Canada and the U.S," Journal of Economics and Finance, Springer;Academy of Economics and Finance, vol. 32(3), pages 207-225, July.
    44. Markus Eberhardt, 2012. "Estimating panel time-series models with heterogeneous slopes," Stata Journal, StataCorp LP, vol. 12(1), pages 61-71, March.
    45. Marquez, Jaime, 1990. "Bilateral Trade Elasticities," The Review of Economics and Statistics, MIT Press, vol. 72(1), pages 70-77, February.
    46. Fabio Augusto Reis Gomes & Lourenco Senne Paz, 2005. "Can real exchange rate devaluation improve the trade balance? The 1990-1998 Brazilian case," Applied Economics Letters, Taylor & Francis Journals, vol. 12(9), pages 525-528.
    47. Rafael E. De Hoyos & Vasilis Sarafidis, 2006. "Testing for cross-sectional dependence in panel-data models," Stata Journal, StataCorp LP, vol. 6(4), pages 482-496, December.
    48. Bahmani-Oskooee, Mohsen & Halicioglu, Ferda, 2017. "Asymmetric effects of exchange rate changes on Turkish bilateral trade balances," Economic Systems, Elsevier, vol. 41(2), pages 279-296.
    49. Albert Wijeweera & Brian Dollery, 2013. "J-curve disparity between the goods sector and the services sector: evidence from Australia," Applied Economics Letters, Taylor & Francis Journals, vol. 20(5), pages 452-456, March.
    50. Pavle Petrović & Mirjana Gligorić, 2010. "Exchange Rate and Trade Balance: J-curve Effect," Panoeconomicus, Savez ekonomista Vojvodine, Novi Sad, Serbia, vol. 57(1), pages 23-41, March.
    51. Elif Akbostanci, 2004. "Dynamics of the Trade Balance: The Turkish J-Curve," Emerging Markets Finance and Trade, Taylor & Francis Journals, vol. 40(5), pages 57-73, September.
    52. G. S. Maddala & Shaowen Wu, 1999. "A Comparative Study of Unit Root Tests with Panel Data and a New Simple Test," Oxford Bulletin of Economics and Statistics, Department of Economics, University of Oxford, vol. 61(S1), pages 631-652, November.
    53. Prakash, Kushneel & Maiti, Dibyendu, 2016. "Does devaluation improve trade balance in small island economies? The case of Fiji," Economic Modelling, Elsevier, vol. 55(C), pages 382-393.
    54. Levin, Andrew & Lin, Chien-Fu & James Chu, Chia-Shang, 2002. "Unit root tests in panel data: asymptotic and finite-sample properties," Journal of Econometrics, Elsevier, vol. 108(1), pages 1-24, May.
    55. Paul R. Krugman & Richard E. Baldwin, 1987. "The Persistence of the U.S. Trade Deficit," Brookings Papers on Economic Activity, Economic Studies Program, The Brookings Institution, vol. 18(1), pages 1-56.
    56. Thorvaldur Gylfason & Michael Schmid, 1983. "Does Devaluation Cause Stagflation?," Canadian Journal of Economics, Canadian Economics Association, vol. 16(4), pages 641-654, November.
    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. Trofimov, Ivan D., 2020. "Real Exchange Rate and the Dynamics of Services Trade Balance in the UK: A Linear and Non-linear ARDL Analysis," MPRA Paper 106703, University Library of Munich, Germany.
    2. Skare, Marinko & Ozturk, Ilhan & Porada-Rochoń, Małgorzata & Stjepanovic, Sasa, 2024. "Energy as the new frontier: Dynamic panel data analysis revealing energy's transformative role in economic growth and technological progress," Technological Forecasting and Social Change, Elsevier, vol. 200(C).
    3. Zeeshan Arshad & Margarita Robaina & Anabela Botelho, 2020. "Renewable and Non-renewable Energy, Economic Growth and Natural Resources Impact on Environmental Quality: Empirical Evidence from South and Southeast Asian Countries with CS-ARDL Modeling," International Journal of Energy Economics and Policy, Econjournals, vol. 10(5), pages 368-383.
    4. Peñasco, Cristina & del Río, Pablo & Romero-Jordán, Desiderio, 2017. "Gas and electricity demand in Spanish manufacturing industries: An analysis using homogeneous and heterogeneous estimators," Utilities Policy, Elsevier, vol. 45(C), pages 45-60.
    5. Trofimov, Ivan D., 2020. "Public capital and productive economy profits: evidence from OECD economies," MPRA Paper 106848, University Library of Munich, Germany.
    6. Chakraborty, Saptorshee Kanto & Mazzanti, Massimiliano, 2020. "Energy intensity and green energy innovation: Checking heterogeneous country effects in the OECD," Structural Change and Economic Dynamics, Elsevier, vol. 52(C), pages 328-343.
    7. Usman, Muhammad & Makhdum, Muhammad Sohail Amjad, 2021. "What abates ecological footprint in BRICS-T region? Exploring the influence of renewable energy, non-renewable energy, agriculture, forest area and financial development," Renewable Energy, Elsevier, vol. 179(C), pages 12-28.
    8. Gautam, Tej K. & Paudel, Krishna P., 2018. "The demand for natural gas in the Northeastern United States," Energy, Elsevier, vol. 158(C), pages 890-898.
    9. Khan, Zeeshan & Ali, Muhsin & Jinyu, Liu & Shahbaz, Muhammad & Siqun, Yang, 2020. "Consumption-based carbon emissions and trade nexus: Evidence from nine oil exporting countries," Energy Economics, Elsevier, vol. 89(C).
    10. Olivier Damette & Mathilde Maurel & Michael A. Stemmer, 2016. "What does it take to grow out of recession? An error-correction approach towards growth convergence of European and transition countries," Post-Print halshs-01318131, HAL.
    11. R. Golinelli & I. Mammi & A. Musolesi, 2018. "Parameter heterogeneity, persistence and cross-sectional dependence: new insights on fiscal policy reaction functions for the Euro area," Working Papers wp1120, Dipartimento Scienze Economiche, Universita' di Bologna.
    12. Eibinger, Tobias & Deixelberger, Beate & Manner, Hans, 2024. "Panel data in environmental economics: Econometric issues and applications to IPAT models," Journal of Environmental Economics and Management, Elsevier, vol. 125(C).
    13. Fotis, Panagiotis & Polemis, Michael, 2018. "The impact of market deregulation on milk price: A dynamic panel data approach," MPRA Paper 86542, University Library of Munich, Germany.
    14. Cem Ertur & Antonio Musolesi, 2017. "Weak and Strong Cross‐Sectional Dependence: A Panel Data Analysis of International Technology Diffusion," Journal of Applied Econometrics, John Wiley & Sons, Ltd., vol. 32(3), pages 477-503, April.
    15. Jian Xue & Zeeshan Rasool & Raima Nazar & Ahmad Imran Khan & Shaukat Hussain Bhatti & Sajid Ali, 2021. "Revisiting Natural Resources—Globalization-Environmental Quality Nexus: Fresh Insights from South Asian Countries," Sustainability, MDPI, vol. 13(8), pages 1-19, April.
    16. Acikgoz, Senay & Ben Ali, Mohamed Sami, 2019. "Where does economic growth in the Middle Eastern and North African countries come from?," The Quarterly Review of Economics and Finance, Elsevier, vol. 73(C), pages 172-183.
    17. Khang Yi Sim & Siok Kun Sek, 2024. "Unveiling the asymmetric energy-growth nexus in top oil-importing and exporting countries: The common correlated effects approach," Energy & Environment, , vol. 35(2), pages 539-568, March.
    18. Škare, Marinko & Porada-Rochoń, Małgorzata, 2023. "Are we making progress on decarbonization? A panel heterogeneous study of the long-run relationship in selected economies," Technological Forecasting and Social Change, Elsevier, vol. 188(C).
    19. Mohammad Naim Azimi & Mohammad Musa Shafiq, 2022. "The J-curve phenomenon in Afghanistan and its major trading partners: evidence from a non-linear ARDL approach," SN Business & Economics, Springer, vol. 2(7), pages 1-28, July.
    20. Frauke Dobnik, 2011. "Energy Consumption and Economic Growth Revisited: Structural Breaks and Cross-section Dependence," Ruhr Economic Papers 0303, Rheinisch-Westfälisches Institut für Wirtschaftsforschung, Ruhr-Universität Bochum, Universität Dortmund, Universität Duisburg-Essen.

    More about this item

    Keywords

    J-curve; panel data; trade balance; exchange rate; services;
    All these keywords.

    JEL classification:

    • C23 - Mathematical and Quantitative Methods - - Single Equation Models; Single Variables - - - Models with Panel Data; Spatio-temporal Models
    • F14 - International Economics - - Trade - - - Empirical Studies of Trade
    • F32 - International Economics - - International Finance - - - Current Account Adjustment; Short-term Capital Movements

    NEP fields

    This paper has been announced in the following NEP Reports:

    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:pra:mprapa:106704. 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: Joachim Winter (email available below). General contact details of provider: https://edirc.repec.org/data/vfmunde.html .

    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.