Page 70 - Azerbaijan State University of Economics

THE JOURNAL OF ECONOMIC SCIENCES: THEORY AND PRACTICE

J-CURVE AND THE MARSHALL-LERNER
CONDITION - THE CASE OF AZERBAIJAN

Emin Zamin Huseynov
PhD student Institute for Scientific Research on Economic Reforms,
Ministry of Economic Development of the Republic of Azerbaijan
E-mail: [email protected]; [email protected]

Abstract

Research aim - the goal of this research paper was to establish the
relationship between the exchange rate of Azerbaijani manat and
international trade aggregates. To achieve this, we build a trade balance
model between bilateral real exchange rate and the volumes of
Azerbaijani exports and imports. Theoretical foundation - this research is
based on decades of theoretical and empirical research on the topic of the
J-curve and the Marshall-Lerner condition. Research results - Our results
conclude that devaluation of the manat will cause the national trade
balance to improve in the long run. In the short run, the balance of trade
temporarily worsens due to the presence of a price effect. Limitations -
our results are robust and consistent, although they are limited with data
aggregation; future studies should employ disaggregated models.
Practical implications - this paper puts quantified results on the tables of
Azerbaijani policy makers, arguing for the possibility of trade balance
improvement due to currency depreciation. originality and innovation -
this paper’s originality is that there is no precedent in the study of the
Azerbaijani J-curve and this research is both original and unique.

Keywords: Marshall-Lerner condition, J-curve, real depreciation, manat,
export and import price.

JEL Classification Codes: F31; F41

1. Introduction and Literature Review
Standard economic theory suggests that a real devaluation of the
domestic currency can potentially improve the trade balance. A change

in the exchange rates has two effects on the flow of trade – price effect

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