The real peso–dollar rate and US–Mexico industry trade: an asymmetric analysis

Abstract

In an attempt to improve upon previous analyses and find further evidence for exchange rate theories such as the 'J-curve', numerous studies have introduced novel econometric approaches that might help uncover significant results through disaggregation and nonlinearity. This study applies the nonlinear cointegration method of Shin et al. (2014) to US-Mexican trade balances in 91 individual industries. While the linear model yields support for the 'J-curve' effect in 16 industries, the nonlinear model raises this number to 29 which includes the two largest industries that engage in 35% of the trade between two countries. Furthermore, while the short-run asymmetric effects of exchange rate changes were discovered in almost all industries, short-run effects translated to significant long-run asymmetric effects in 52 industries.

The South Africa‐U.S. Trade and the Real Exchange Rate: Asymmetric Evidence from 25 Industries

“…The list includes Bahmani‐Oskooee and Baek () who included 79 industries that trade between Korea and the U.S.; Bahmani‐Oskooee and Rahman () who dealt with 11 industries that trade between Bangladesh and the U.S.; Bahmani‐Oskooee and Saha () who considered the case of India and the U.S. and included 68 industries; and finally, Bahmani‐Oskooee et al . () who considered 91 industries between Mexico and the U.S.…”

“…Following the literature and specifically Bahmani‐Oskooee et al . () we begin with the following reduced form trade balance model:…”

An inquiry into exchange rate misalignments as a cause of major global trade imbalances

“…However, the net benefit of depreciation can only be positive if the elasticities of export and import sum up to a value greater than unity, i.e. the Marshall-Lerner condition (see Bahmani-Oskooee Ratha, 2004 or most recently Bahmani-Oskooee and Saha, 2017; Bahmani-Oskooee et al , 2018 for interesting insights). Hence, on the depreciation, there is mixed evidence supporting the role of depreciation in improvements in trade balances (see Bahmani-Oskooee, 1991a, b; Bahmani-Oskooee and Ratha, 2004; Bahmani-Oskooee and Hegerty, 2010; Bahmani-Oskooee et al , 2013, 2016, 2018; Yildirim and Ivrendi, 2016, Bahmani-Oskooee and Saha, 2017) and also indicating a lack of evidence on such a nexus, for instance, seminal work by Rose and Yellen (1989) and Rose (1991).…”

“…the Marshall-Lerner condition (see Bahmani-Oskooee Ratha, 2004 or most recently Bahmani-Oskooee and Saha, 2017; Bahmani-Oskooee et al , 2018 for interesting insights). Hence, on the depreciation, there is mixed evidence supporting the role of depreciation in improvements in trade balances (see Bahmani-Oskooee, 1991a, b; Bahmani-Oskooee and Ratha, 2004; Bahmani-Oskooee and Hegerty, 2010; Bahmani-Oskooee et al , 2013, 2016, 2018; Yildirim and Ivrendi, 2016, Bahmani-Oskooee and Saha, 2017) and also indicating a lack of evidence on such a nexus, for instance, seminal work by Rose and Yellen (1989) and Rose (1991). In specific to China, Bahmani-Oskooee and Wang (2006) while analysing the impact of real depreciation on China reported that with a few of its trading partners there was favourable impact including the USA.…”

“…Concomitantly, real depreciation may occur only through domestic price and wage deflation (internal devaluation)[4]. However, beyond the comparison of the EMU members, exchange rates play a vital role in a country’s level of trade, which is critical to almost every free market economy in the world (see Bahmani-Oskooee and Ratha, 2004; Bahmani-Oskooee and Saha, 2017; Bahmani-Oskooee et al , 2018). For this reason, exchange rates are among the most watched, analysed and governmentally manipulated economic measures.…”