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The J-Curve Effect on the Trade Balance in Armenia

Received: 27 April 2015     Accepted: 11 May 2015     Published: 23 May 2015
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Abstract

Over the past years the Armenian Dram has appreciated against their major trading partners’ currencies. Such appreciation has received mixed reactions. Some economists argue that the depreciation of currencies is a good stimulant for export growth, while others argue that the net benefits of depreciation cannot outweigh its ills on the economy. The purpose of this paper is to investigate the effects of depreciation on the trade balance of Armenia using vector error correction model (VECM) and to trace the response of the trade balance to the shocks in the exchange rate using Impulse response function. This study finds evidence of the J-curve on the Armenian trade balance and the existence of a long-run equilibrium relationship among the variables. This suggests that following a real depreciation the trade balance will initially deteriorate, but will improve in the long run.

Published in International Journal of Economics, Finance and Management Sciences (Volume 3, Issue 3)
DOI 10.11648/j.ijefm.20150303.23
Page(s) 270-278
Creative Commons

This is an Open Access article, distributed under the terms of the Creative Commons Attribution 4.0 International License (http://creativecommons.org/licenses/by/4.0/), which permits unrestricted use, distribution and reproduction in any medium or format, provided the original work is properly cited.

Copyright

Copyright © The Author(s), 2015. Published by Science Publishing Group

Keywords

Armenia, J-Curve, Exchange Rate, Trade Balance, VECM

References
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[2] Armenia economic report (2010). The necessity of economic diversification and export expansion, Ministry of Economy of the Republic of Armenia.
[3] Bahmani-Oskooee, M. (2004). The J-Curve: A Literature Review. Journal of Applied Economics, 36, 1377-1398.
[4] Bahmani-Oskooee, M. and Jehanzeb, Ch. (2009). Short run and long-run effects of currency depreciation on the bilateral trade balance between Pakistan and her major trading partners. Journal of economic development,34.
[5] Bahmani-Oskooee, M. and Swarnjit, A. (2003). Bilateral J-Curve Between India and her Trading Partners. Journal of Applied Economics, 35, 1037-1041.
[6] Bahmani-Oskooee, Mohsen, and Ali M. Kutan (2007). The J-Curve in the Emerging Economies of Eastern Europe. The International Trade Journal, 19,165–178.
[7] Bredin, D.,Fountas, S. and Murphy E.(2003). International Review of Applied Economics, 17, 2.
[8] De Silva, D. G., and Zhu, Z. (2004). Sri Lanka’s Experiment with Devaluation: VAR and ECM Analysis of Exchange Rate Effects on Trade Balance and GDP. The International Trade Journal, 18 (4), 269-301.
[9] Dickey, D. A. and Fuller, W. A. (1979) Distributions of the estimators for autoregressive time series with a unit root, jounal of the American Statistical Association, 74, 427.
[10] Enders, E. (2004). Applied Econometric Time Series (2nd edition) New Jersey: John Wiley & Sons.
[11] Grigoryan, V. and Dallakyan, A. (2003). Equilibrium real exchange rate model of Armenia, Working paper of Central bank of Armenia.
[12] Gupta-Kapoor, A. and Ramakrishna, U. (1999). Is There a J-curve? A New Estimation for Japan. International Economic Journal,13 (4), 71-19.
[13] Hacker, R. Scott, and Abudlnasser, Hatemi-J. (2004). The Effect of Exchange Rate Changes on the Trade Balance in the Short and Long Run: Evidence from German Trade and Transitional Central European Economies. Journal of Economics of Transition, 12(4), 777-799
[14] Hsing, Han-Min (2005). Re-examination of J-Curve Effect for Japan, Korea and Taiwan. Japan and the World economy, 2 (17), 43-58.
[15] Johansen, S. (1995). Likelihood–Based Inference in Cointegrated Vector Autoregressive Models. Oxford: Oxford University Press.
[16] M. Abimbola Oyinlola, Oluwatosin Adeniyi and Olusegun Omisakin (2010). Responsiveness of Trade Flows to Changes in Exchange rate and Relative prices: Evidence from Nigeria. International Journal of Economic Sciences and Applied Research 3 (2): 123-141
[17] Narayan Paresh (2004). New Zealand’s Trade Balance: Evidence of the J-Curve and Granger Causality. Applied Economics Letters, 11, 351-354.
[18] Narayan, Paresh. K., and Narayan, Seema (2004). The J-Curve: Evidence from Fiji. International Review of Applied Economics, 18 (3), 369-380.
[19] Pesaran, M. H. Y. Shin and Smith, R. J. (2iJ01) Bounds testing approaches to the analysis of level relationships, journal of Applied Econometrics. 16, 289-326.
[20] Petrovic, P. and Grigoric, M. (2010). Exchange Rate and Trade Balance: J-curve Effect, Panaeconomicus,1, 23-41.
[21] Rabeya, Kh. and Rahman M. M. (2009). Assessing the Existence of the J-Curve Effect in Bangladesh, The Bangladesh Development Studies,32 , 2.
[22] Rose, A. K. (1990) Exchange rates and the trade balance: some evidence from developing countries economic letters, 3, 271-275.
[23] Rose, Andrew, and Janet Yellen (1989). Is There a J-Curve. Journal of Monetary Economics, 24, 53-68.
[24] Tarlok Singh (2004). Testing J-Curve Hypothesis and Analyzing the Effect of Exchange Rate Volatility on the Balance of Trade in India. Empirical Economics, 29, 227-245.
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    Gevorg Grigoryan. (2015). The J-Curve Effect on the Trade Balance in Armenia. International Journal of Economics, Finance and Management Sciences, 3(3), 270-278. https://doi.org/10.11648/j.ijefm.20150303.23

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    ACS Style

    Gevorg Grigoryan. The J-Curve Effect on the Trade Balance in Armenia. Int. J. Econ. Finance Manag. Sci. 2015, 3(3), 270-278. doi: 10.11648/j.ijefm.20150303.23

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    AMA Style

    Gevorg Grigoryan. The J-Curve Effect on the Trade Balance in Armenia. Int J Econ Finance Manag Sci. 2015;3(3):270-278. doi: 10.11648/j.ijefm.20150303.23

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  • @article{10.11648/j.ijefm.20150303.23,
      author = {Gevorg Grigoryan},
      title = {The J-Curve Effect on the Trade Balance in Armenia},
      journal = {International Journal of Economics, Finance and Management Sciences},
      volume = {3},
      number = {3},
      pages = {270-278},
      doi = {10.11648/j.ijefm.20150303.23},
      url = {https://doi.org/10.11648/j.ijefm.20150303.23},
      eprint = {https://article.sciencepublishinggroup.com/pdf/10.11648.j.ijefm.20150303.23},
      abstract = {Over the past years the Armenian Dram has appreciated against their major trading partners’ currencies. Such appreciation has received mixed reactions. Some economists argue that the depreciation of currencies is a good stimulant for export growth, while others argue that the net benefits of depreciation cannot outweigh its ills on the economy. The purpose of this paper is to investigate the effects of depreciation on the trade balance of Armenia using vector error correction model (VECM) and to trace the response of the trade balance to the shocks in the exchange rate using Impulse response function. This study finds evidence of the J-curve on the Armenian trade balance and the existence of a long-run equilibrium relationship among the variables. This suggests that following a real depreciation the trade balance will initially deteriorate, but will improve in the long run.},
     year = {2015}
    }
    

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  • TY  - JOUR
    T1  - The J-Curve Effect on the Trade Balance in Armenia
    AU  - Gevorg Grigoryan
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    T2  - International Journal of Economics, Finance and Management Sciences
    JF  - International Journal of Economics, Finance and Management Sciences
    JO  - International Journal of Economics, Finance and Management Sciences
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    PB  - Science Publishing Group
    SN  - 2326-9561
    UR  - https://doi.org/10.11648/j.ijefm.20150303.23
    AB  - Over the past years the Armenian Dram has appreciated against their major trading partners’ currencies. Such appreciation has received mixed reactions. Some economists argue that the depreciation of currencies is a good stimulant for export growth, while others argue that the net benefits of depreciation cannot outweigh its ills on the economy. The purpose of this paper is to investigate the effects of depreciation on the trade balance of Armenia using vector error correction model (VECM) and to trace the response of the trade balance to the shocks in the exchange rate using Impulse response function. This study finds evidence of the J-curve on the Armenian trade balance and the existence of a long-run equilibrium relationship among the variables. This suggests that following a real depreciation the trade balance will initially deteriorate, but will improve in the long run.
    VL  - 3
    IS  - 3
    ER  - 

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Author Information
  • Shanghai University of Finance & Economics, School of Finance, Shanghai, China

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