The objective of this paper is to shed new light on the nonlinear relationship between real exchange rate changes and trade balance in Cote d’Ivoire. In examining this issue, previous studies have relied on the nonlinear autoregressive distributed lag model developed by Shin et al. (2014) where real exchange rate is decomposed into partial sum of positive and negative changes. They fail to examine the response of the trade balance to extreme changes in the real exchange rate. In order to investigate possible sign and size-dependence in the response of the trade balance to exchange rate, this study uses multiple threshold nonlinear ARDL modeling. The approach is implemented using annual data covering the period 1975-2017. The results reveal that the effects of changes in real exchange rate are asymmetric in both time horizons. More specifically, real exchange rate appreciations deteriorate the trade balance while real depreciations improve it. Further, the effect of large depreciations is higher when compared with large appreciations.
Adeniyi, O., Omisakin, O., & Oyinlola, A. (2011). Exchange Rate and Trade Balance in West African Monetary Zone: Is There a J-Curve? The International Journal of Applied Economics and Finance, 5, 167-176. https://dx.doi.org/10.3923/ijaef.2011.167.176
Akoto, L., & Sakyi, D. (2019). Empirical Analysis of the Determinants of Trade Balance in Post-liberalization Ghana. Foreign Trade Review, 54, 177-205. https://doi.org/10.1177%2F0015732519851632
Akpansung, A. O., & Babalola, S. J. (2013). Effects of Real Exchange Rate on Trade Balance: Empirical Evidence from Nigeria. Asian Journal of Empirical Research, 3, 605-617.
Anning, L., Riti, J. S., & Yapatake, K. T. (2015). Exchange Rate and Trade Balance in Ghana—Testing the Validity of the Marshall-Lerner Condition. International Journal of Development and Emerging Economics, 3, 38-52.
Arize, A. C., Malindretos, J., & Igwe, E. U. (2017). Do Exchange Rate Changes Improve the Trade Balance: An Asymmetric Nonlinear Cointegration Approach. International Review of Economics & Finance, 49, 313-326. https://doi.org/10.1016/j.iref.2017.02.007
Baharumshah, A. (2001). The Effect of Exchange Rate on Bilateral Trade Balance: New Evidence from Malaysia and Thailand. Asian Economic Journal, 15, 291-312. https://doi.org/10.1111/1467-8381.00135
Bahmani-Oskooee, M. (2001). Nominal and Real Effective Exchange Rates of Middle Eastern Countries and Their Trade Performance. Applied Economics, 33, 103-111. https://doi.org/10.1080/00036840122490
Bahmani-Oskooee, M., & Arize, A. C. (2019). U.S.-Africa Trade Balance and the J-Curve: An Asymmetry Analysis. The International Trade Journal, 33, 322-343. https://doi.org/10.1080/08853908.2019.1570881
Bahmani-Oskooee, M., & Arize, A. C. (2020). Asymmetry Cointegration and the J-Curve: New Evidence from Africa. Journal of Economic Studies, 47, 969-984. https://doi.org/10.1108/JES-09-2018-0333
Bahmani-Oskooee, M., & Baek, J. (2019). Asymmetry Cointegration and the J-Curve: New Evidence from Korean Bilateral Trade Balance Models with her 14 Partners. Journal of the Asia Pacific Economy, 24, 66-81. https://doi.org/10.1080/13547860.2018.1469589
Bahmani-Oskooee, M., & Fariditavana, H. (2015). Nonlinear ARDL Approach, Asymmetric Effects and the J-Curve. Journal of Economic Studies, 42, 519-530. https://doi.org/10.1108/JES-03-2015-0042
Bahmani-Oskooee, M., & Fariditavana, H. (2016). Nonlinear ARDL Approach and the J-Curve Phenomenon. Open Economies Review, 27, 51-70. https://doi.org/10.1007/s11079-015-9369-5
Bahmani-Oskooee, M., & Fariditavana, H. (2020). Asymmetric Cointegration and the J-Curve: New Evidence from Commodity Trade between the U.S. & Canada. International Economics and Economic Policy, 17, 427-482. https://doi.org/10.1007/s10368-019-00447-0
Bahmani-Oskooee, M., & Gelan, A. (2020). The South Africa-U.S. Trade and the Real Exchange Rate: Asymmetric Evidence from 25 Industries. South African Journal of Economics, 88, 186-203. https://doi.org/10.1111/saje.12242
Bahmani-Oskooee, M., Bose, N., & Zhang, Y. (2019). An Asymmetric Analysis of the J-Curve Effect in the Commodity Trade between China and the US. The World Economy, 42, 2854-2899. https://doi.org/10.1111/twec.12829
Boyd, D., Caporale, G. M., & Smith, R. (2001). Real Exchange Rate Effects on the Balance of Trade: Cointegration and the Marshall-Lerner Condition. International Journal of Finance and Economics, 6, 187-200. https://doi.org/10.1002/ijfe.157
Bussière, M. (2013). Exchange Rate Pass-through to Trade Prices: The Role of Nonlinearities and Asymmetries. Oxford Bulletin of Economics and Statistics, 75, 731-758. https://doi.org/10.1111/j.1468-0084.2012.00711.x
Caporale, G. M., Gil-Alana, L., & Mudida, R. (2015). Testing the Marshall-Lerner Condition in Kenya. South African Journal of Economics, 83, 253-268. https://doi.org/10.1111/saje.12052
Davies, R. B. (1987). Hypothesis Testing when a Nuisance Parameter is Present only under the Alternative. Biometrika, 74, 33-43. https://doi.org/10.1093/biomet/74.1.33
Duasa, J. (2007). Determinants of Malaysian Trade Balance: An ARDL Bound Testing Approach. Global Economic Review, 36, 89-102. https://doi.org/10.1080/12265080701217405
Elliott, G., Rothenberg, T. J., & Stock, J. H. (1996). Efficient Tests for an Autoregressive Unit Root. Econometrica, 64, 813-836. https://doi.org/10.2307/2171846
Genemo, K. B. (2017). Effect of Exchange Rate on Trade Balance in Major East African Countries: Evidence from Panel Cointegration. European Business and Management, 3, 95-104. https://doi.org/10.11648/j.ebm.20170306.11
Gonzalo, J. (1994). Five Alternative Methods of Estimating Long-Run Equilibrium Relationship. Journal of Econometrics, 60, 203-233. https://doi.org/10.1016/0304-4076(94)90044-2
Hansen, B. (1996). Inference When a Nuisance Parameter Is Not Identified under the Null Hypothesis. Econometrica, 64, 413-430. https://doi.org/10.2307/2171789
Hatemi-J, A., & Irandoust, M. (2005). Bilateral Trade Elasticities: Sweden versus Her Trade Partners. American Review of Political Economy, 3, 38-50.
Hunegnaw, F. B., & Kim, S. (2017). Foreign Exchange Rate and Trade Balance Dynamics in East African Countries. The Journal of International Trade & Economic Development, 26, 979-999. https://doi.org/10.1080/09638199.2017.1327611
Igue, N. N., & Ogunleye, T. S. (2014). Impact of Real Exchange Rate on Trade Balance in Nigeria. African Development Review, 26, 347-3578. https://doi.org/10.1111/1467-8268.12086
Inder, B. (1993). Estimating Long-Run Relationships in Economics: A Comparison of Different Approaches. Journal of Econometrics, 57, 53-68. https://doi.org/10.1016/0304-4076(93)90058-D
Iyke, N. B., & Ho, S. Y. (2017). The Real Exchange Rate, the Ghanaian Trade Balance, and the J-Curve. Journal of African Business, 18, 380-392. https://doi.org/10.1080/15228916.2017.1315706
Kale, P. (2001). Turkey’s Trade Balance in the Short and the Long Run: Error-Correction Modeling and Cointegration. The International Trade Journal, 15, 27-56. https://doi.org/10.1080/088539001300005440
Kamugisha, G., & Assoua, J. E. (2020). Effects of a Devaluation on Trade Balance in Uganda: An ARDL Cointegration Approach. International Journal of Economics and Finance, 12, 42-53. https://doi.org/10.5539/ijef.v12n7p42
Karoro, T. D., Aziakpono, M. J., & Cattaneo, N. (2009). Exchange Rate Pass-Through to Import Prices in South Africa: Is There Asymmetry? South African Journal of Economics, 77, 380-398. https://doi.org/10.1111/j.1813-6982.2009.01216.x
Keho, Y. (2021a). Real Exchange Rate and Trade Balance Dynamics in Cote d’Ivoire. International Journal of Economics and Financial Issues, 11, 61-70. https://doi.org/10.32479/ijefi.10857
Keho, Y. (2021b). Asymmetric Effects of Real Exchange Rate on Trade Balance in Cote d’Ivoire: Evidence from Nonlinear ARDL Approach. Applied Economics and Finance, 8, 9-21. https://doi.org/10.11114/aef.v8i3.5216
Lal, A., & Lowinger, T. (2002). The J-Curve: Evidence from East Asia. Journal of Economic Integration, 17, 397-415. https://doi.org/10.11130/jei.2002.17.2.397
Loto, M. A. (2011). Does Devaluation Improve the Trade Balance of Nigeria? A Test of the Marshall Lerner Condition. Journal of Economics and International Finance, 3, 624-633.
Magee, S. P. (1973). Currency Contracts, Pass Through, and Devaluation. Brookings Papers of Economic Activity, 1973, 303-325. https://doi.org/10.2307/2534091
Meniago, C., & Eita, J. H. (2017). The Effects of Exchange Rate Changes on Sub-Saharan Africa Trade. International Journal of Sustainable Economy, 9, 213-230. https://doi.org/10.1504/IJSE.2017.085065
Musila, J. W., & Newark, J. (2003). Does Currency Devaluation Improve the Trade Balance in the Long Run? Evidence from Malawi. African Development Review, 15, 339-352. https://doi.org/10.1111/j.1467-8268.2003.00076.x
Nathaniel, S. P. (2020). Does Exchange Rate Have Asymmetric Impact on Trade Balance? Fresh Insights from Combined Cointegration. Studies in Business and Economics, 15, 259-269. https://doi.org/10.2478/sbe-2020-0019
Ogbonna, B. C. (2016). Trade Balance Effect of Exchange Rate Devaluation in Benin Republic: The Empirical Evidence. IOSR Journal of Economics and Finance, 7, 33-43.
Onafowora, O. (2003). Exchange Rate and Trade Balance in East Asia: Is there a J-curve. Economics Bulletin, 5, 1-13.
Ousseini, A. M., Hu, X. J., & Aboubacar, B. (2017). WAEMU Trade and Current Account Balance Deficit Analysis: A Panel VAR Approach. Theoretical Economics Letters, 7, 834-861. https://doi.org/10.4236/tel.2017.74060
Pesaran, M. H., Shin, Y., & Smith, R. J. (2001). Bounds Testing Approaches to the Analysis of Level Relationships. Journal of Applied Econometrics, 16, 289-326. https://doi.org/10.1002/jae.616
Phillips, P. C. B., & Perron, P. (1988). Testing for a Unit Root in a Time Series Regression. Biometrika, 75, 335-346. https://doi.org/10.1093/biomet/75.2.335
Shawa, M. J., & Shen, Y. (2013). Analysis of the Determinants of Trade Balance: Case Study of Tanzania. International Journal of Business and Economics Research, 2, 134-141. https://doi.org/10.11648/j.ijber.20130206.13
Shin, Y., Yu, B., & Greenwood-Nimmo, M. (2014). Modelling Asymmetric Co-integration and Dynamic Multipliers in a Nonlinear ARDL Framework. In W. Horrace, & R. Sickles (Eds.), Festchrift in Honor of Peter Schmidt: Econometric Methods and Applications (pp. 281-314). New York, NY: Springer. https://doi.org/10.1007/978-1-4899-8008-3_9
Sokeng Dongfack, L. P., & Ouyang, H. (2019). The Impact of Real Exchange Rate Depreciation on Cameroon’s Trade Balance: Is Devaluation a Remedy for Persistent Trade Deficits? Journal of Economic Integration, 34, 189-213. https://doi.org/10.11130/jei.2019.34.1.189
Yazgan, M. E., & Ozturk, S. S. (2019). Real Exchange Rates and the Balance of Trade: Does the J-Curve Effect Really Hold? Open Economies Review, 30, 343-373. https://doi.org/10.1007/s11079-018-9510-3
Yol, M. A., & Baharumshah, A. Z. (2007). Estimating Exchange Rate and Bilateral Trade Balance Relationships: The Experience of Sub-Saharan African Countries. South African Journal of Economics, 75, 35-51. https://doi.org/10.1111/j.1813-6982.2007.00104.x