Devaluation and trade balance in Latin American countries


Kalyoncu H., Ozturk I., ARTAN S. , KALYONCU K.

ZBORNIK RADOVA EKONOMSKOG FAKULTETA U RIJECI-PROCEEDINGS OF RIJEKA FACULTY OF ECONOMICS, vol.27, no.1, pp.115-128, 2009 (Journal Indexed in SSCI) identifier identifier

  • Publication Type: Article / Article
  • Volume: 27 Issue: 1
  • Publication Date: 2009
  • Title of Journal : ZBORNIK RADOVA EKONOMSKOG FAKULTETA U RIJECI-PROCEEDINGS OF RIJEKA FACULTY OF ECONOMICS
  • Page Numbers: pp.115-128

Abstract

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.