Page 72 - Azerbaijan State University of Economics

THE JOURNAL OF ECONOMIC SCIENCES: THEORY AND PRACTICE

Arora et al. 2003). Most of the studies have found that, in the long run, a

country’s balance of trade would improve with one trading partner, while
it can deteriorate with another with devaluation of the local currency

(Bhamani-Oskooee and Wang 2006; Bahmani-Oskooee et al. 2005).
Bahmani-Oskooe and Ratha (2004), analyzed the J-curve effect for

the US bilateral trade with 18 major trading partners employing the

autoregressive distributed lagged (ADRL) model. They concluded that, in
the long run, devaluation of the US dollar improved the US trade balance

with Austria, Denmark, Ireland, Italy, Japan, New Zealand, Sweden, and
Switzerland. They found no evidence for the J-curve pattern in the short

run. Nadenichek (2006), employed the structural vector error correction

model to examine the behavior of the US’s trade balance with other G-7
countries. He found that the J-curve pattern exists for the bilateral trade

balance between the US and the other G-7 countries.
According to Narayan (2006), China’s trade balance with the US

has improved not only in the long run but also in the short run with the
depreciation of the Chinese RMB reflecting that the J-curve

phenomenon does not hold. Bhamani-Oskooee and Wang (2006) have

done a similar study for China and its 13 major trading partners. Their
findings are compatible with Narayan’s (2006) in the case of China’s

trade balance with the US. However, they found that in the short run,
depreciation of the RMB has a significant impact in most cases.

More recently, Bahmani-Oskooee et al. (2006) tested the J-curve
phenomenon employing quarterly bilateral data from 1970:Q1- 2001:Q3

for the UK and its 20 major 73 Bilateral J-curve between Sri Lanka and

its major trading partners Central Bank of Sri Lanka trading partners.
They came up with mixed results. In most cases, they found no support

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