The Turkey-US commodity trade and the asymmetric J-curve
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The Turkey‑US commodity trade and the asymmetric J‑curve Mohsen Bahmani‑Oskooee1 · Huseyin Karamelikli2 Received: 27 March 2020 / Accepted: 3 September 2020 © Springer Science+Business Media, LLC, part of Springer Nature 2020
Abstract Unlike past studies, recent studies try to separate currency appreciations from depreciations and show that indeed, the effects of exchange rate changes on the trade balance are asymmetric. We add to this literature by considering the response of the trade balance of 45 industries that trade between Turkey and the USA We find that the real lira-dollar rate has short-run asymmetric effects in 28 out of 45 industries. Short-run asymmetric effects translate into the long-run asymmetric effects in only 13 industries. While our findings are industry specific, additional analysis revealed that in some industries while depreciations had significant effects, appreciations did not, in some other industries the opposite was true. Such findings were hidden by the estimates of past traditional linear models. Keywords Asymmetric J-curve · Nonlinear ARDL · Turkish-US trade · 45 industries JEL Classification F14 · F31
1 Introduction The J-curve is a term used in international economics to describe the short-run movements of the trade balance after a currency devaluation or depreciation. Due to adjustment lags and currency contracts at old prices, the trade balance deteriorates first and improves later. Ever since its theoretical introduction by Magee (1973) and empirical testing approach by Bahmani-Oskooee (1985, 1989), the concept has * Mohsen Bahmani‑Oskooee [email protected] Huseyin Karamelikli [email protected] 1
The Center for Research in International Economics and Department of Economics, The University of Wisconsin-Milwaukee, Milwaukee, USA
2
Department of Economics, Karabuk University, Karabuk, Turkey
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Economic Change and Restructuring
moved along with new development in methodological advances in econometrics. First, introduction of error-correction modelling and cointegration techniques led Rose and Yellen (1989) provide a new definition of the J-curve, i.e. short-run deterioration in the trade balance (assessed by error-correction modelling) combined with long-run improvement (assessed by cointegration method). The second direction is due to introduction of asymmetric error-correction modelling and asymmetric cointegration by Shin et al. (2014) which led Bahmani-Oskooee and Fariditavana (2015, 2016) to introduce the concept of asymmetric J-curve. The entire literature is so vast that each country now has its own literature. Since our country of concern is Turkey, a brief review is in order.1 We divide Turkeyrelated studies into two categories. The first includes studies that have relied upon the old approach of symmetric assumption which relies upon linear models. The list includes Bahmani-Oskooee and Alse (1994) and Halicioglu (2008a) who found support for the J-curve and Rose (1990), Bahmani-Oskooee and Malixi (1992), Brada et al. (1
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