Currency devaluation and trade balance: Evidence from the US services trade

Cheng, Ka Ming

doi:10.1016/j.jpolmod.2019.09.005

Cited by 20 publications

(18 citation statements)

References 39 publications

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“…This statement was also supported in the following studies : Cheng, 2020;Ayele, 2019;Nawaz et al, 2018;Abdul Sattar et al, 2015;and Mohsen Bahmane-kooee et al, 2014. In addition, to the stability of the model, we performed a diagnostics test.…”

Section: Conclusion Discussion and Recommendationsmentioning

confidence: 65%

“…In the example of Sri Lanka, De Silva and Zhu (2004) used the VAR (vector autoregressive) technique on quarterly data from 1976 to 1998 and found that currency depreciation improved the trade balance but had a contractionary effect on the GDP. Cheng (2020) researched currency devaluation and trade balance in the US economy with services trade. Cheng examines the usefulness of currency depreciation as a policy tool for improving trade balances by calculating the exchange rate elasticity of services trade between the US and the rest of the world using quarterly disaggregated data from 1999 to 2015.…”

Section: Empirical Reviewmentioning

confidence: 99%

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Impact of Currency Devaluation on Economic Growth: Evidence from Pakistan

Khan¹,

Khan

Wei

et al. 2022

JMS

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This study examines the impact of currency devaluation on Pakistan's economic growth. Currency devaluation is controversial topics for both developing and developed economies to believe and hope to improve economic growth. In this study, the model used to find the cointegration between variables. The annual time series data over1990 to 2018, together with ARDL model and Johansson cointegration model used to test whether there is a long-run relationship between economic growth and currency devaluation. Both proposed models indicate that the devaluation of Pakistan’s currency has no significant impact on the long-run changes in economic growth. However, Interest rates and gross capital formation are positive correlated with economic growth in the long run. Currency devaluation is a cure for balance of payment, enhances the competitiveness of the international market and promotes trade balance. Due to some political instability, macroeconomic and environmental conditions in a country, cure is sometimes worse than disease. The paper recommends making the Pakistan economy a sustainable, easy and friendly business environment and looking closer at the economic indicators to make Industrial economic policy. Government must make a good policy for industrialization, instead of currency devaluation, Pakistan industrial sector has a potential to improve the economy, and the authorities should need to create an easy and friendly environment for foreigner business and investors. In addition, allow currency freely to depreciate through market force and efficient money market system, official’s devaluation should be discouraged.

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Section: Conclusion Discussion and Recommendationsmentioning

confidence: 65%

Section: Empirical Reviewmentioning

confidence: 99%

Impact of Currency Devaluation on Economic Growth: Evidence from Pakistan

Khan¹,

Khan

Wei

et al. 2022

JMS

View full text Add to dashboard Cite

show abstract

“…Ghatak and Siddiki (2001) suggest that the ARDL bound testing approach has more appropriate considerations than the Johansen-Juselius and Engle-Granger techniques for testing the cointegration among variables in small sample sizes. The ARDL approach can be used to examine the short-run and long-run dynamic interactions of the variables simultaneously and is robust for small samples (Bahmani-Oskooee and Nasir 2004;Lee 2010;Narayan, 2005;Cheng 2020;Hossain 2009). Furthermore, the ARDL application allows the variable to have different optimal lags, which is impossible with conventional cointegration procedures (Ozturk and Acaravci 2011).…”

Section: Methodsmentioning

confidence: 99%

Exchange rate changes, price level and the income effects on trade balance in South Africa

Ndou

2021

SN Bus Econ

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This paper examines the long-run and short-run effects of the exchange rate changes on the net trade balance in South Africa and compares the effects to those induced by the foreign and domestic price and income effects. Using annual data from 1970 to 2019 and the autoregressive distributed lags bounds testing approach, evidence shows that the long-run elasticities of the exchange rate on the net trade balance are bigger than the short-run impacts. In both the short run and long run, the impact of domestic income on the net trade balance is the biggest followed by consumer prices and then last is the nominal effective exchange rate. The long-run impact of the domestic income is nearly double that of the exchange rate. This shows that domestic income has a bigger effect on the net trade balance than both the price levels and the exchange rate effects. These results imply that policymakers designing the exchange rate policy should complement this with an appropriate industrial policy which emphasises the value of import-substituting industries to eliminate the net trade deterioration. At the same time, the design of the inflation targeting framework matters. Hence, there is a need to pursue import-substitution strategies to strengthen the domestic industrial base with all the associated multiplier effects throughout the economy and this contributes to the reduction of the worsening trade deficits.

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“…Exchange rate between two economies is the prime tool to regulate the trade flow between the economies [4]; [5]. It plays a critical role especially in developing countries, which tend to have discrepancies in external trade.…”

Section: Introductionmentioning

confidence: 99%

Autoregressive Distributed Lag Transformation for Exchange Rate and Trade Balance

Asif

Haq

2022

IJEMD-M

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In this study the prime objective is to initiate autoregressive distributed lag transformation for exchange rate and trade balance to avoid the possible existence of multicollinearity among the explanatory variables and to analyze the variation in real exchange rate and its impact on trade balance in Pakistan. The Koyck model was used for studying the immediate impact and long run relationship between the variables by using time series annual data ranging from 1981 to 2021. The result showed that there is an inverse association between the trade balance and the exchange rate. It is evident from the results that the depreciation in exchange rate will bring upward movement in the trade balance.

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Currency devaluation and trade balance: Evidence from the US services trade

Cited by 20 publications

References 39 publications

Impact of Currency Devaluation on Economic Growth: Evidence from Pakistan

Impact of Currency Devaluation on Economic Growth: Evidence from Pakistan

Exchange rate changes, price level and the income effects on trade balance in South Africa

Autoregressive Distributed Lag Transformation for Exchange Rate and Trade Balance

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