Impact of Exchange Rate Movements on Foreign Trade

Humberto Arandia () and Luis Laura ()
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Humberto Arandia: Ministerio de Economía y Finanzas Públicas
Luis Laura: Ministerio de Economía y Finanzas Públicas

Cuadernos de Investigación Económica Boliviana, 2018, vol. 2, issue 2, 1-33

Abstract: In an external context of declining terms of trade since 2011, which gained momentum mainly in 2014, many economies recorded strong devaluations in order to improve their competitiveness. Within this framework, the present paper uses various statistical techniques to analyze the impact of variations in the real exchange rate on foreign trade, using the approaches of the Marshall-Lerner condition, and the “S” and “J” Curves according to the literature and international empirical experience for the case of Bolivia. The main results show that because a significant percentage of exports do not respond to the real exchange rate (price effect), the Marshall-Lerner condition is not complied with for the Bolivian case. This aspect is corroborated through estimation of the J-Curve and calculation of the S-Curve, which indicate that the trade balance does not show a significant improvement in the face of real depreciation. In the same way, it is found that the income effect is the most important when analyzing the determinants of export and import demands.

Keywords: Marshall-Lerner; J-Curve; S-Curve; Real Devaluation; Trade Balance (search for similar items in EconPapers)
JEL-codes: C32 F14 F31 F34 (search for similar items in EconPapers)
Date: 2018
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Persistent link: https://EconPapers.repec.org/RePEc:efp:journl:v:2:y:2018:i:2:p:1-33

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