EconPapers    
Economics at your fingertips  
 

Exchange rate movements and trade balance in developing economies: Evidence of symmetry and country-specific asymmetries

Muhammad Muzammil, Mahnaz Muhammad Ali, Tanveer Bagh and Muhammad Asif Khan

The Journal of International Trade & Economic Development, 2025, vol. 34, issue 6, 1444-1482

Abstract: The impact of exchange rate (ER) movements on the trade balance has been extensively debated in the literature, with conflicting views on the nature and magnitude of this effect. This paper investigates the relationship between ER movements and trade balance in developing economies, with a specific focus on bilateral analysis involving Pakistan. Employing the Nonlinear Autoregressive Distributed Lag (NARDL) model, our results reveal a symmetric relationship between positive and negative ER changes and the trade balance, showing significant long-term and short-term effects across the panel of developing economies. However, country-specific asymmetries are observed, especially in the cases of India and China, and are more pronounced in each bilateral analysis, whether in the short run or long run. The study findings highlight the critical importance of maintaining a stable exchange rate policy, which can provide policymakers with precise insights into the money market and the broader economy while preventing high volatility and continuous depreciation of domestic currencies. Such measures can mitigate the long-term adverse effects of ER movements on trade agreements. The study offers valuable insights for policymakers and investors in developing economies, aiding them in making informed decisions about exchange rate policies.

Date: 2025
References: Add references at CitEc
Citations:

Downloads: (external link)
http://hdl.handle.net/10.1080/09638199.2024.2389871 (text/html)
Access to full text is restricted to subscribers.

Related works:
This item may be available elsewhere in EconPapers: Search for items with the same title.

Export reference: BibTeX RIS (EndNote, ProCite, RefMan) HTML/Text

Persistent link: https://EconPapers.repec.org/RePEc:taf:jitecd:v:34:y:2025:i:6:p:1444-1482

Ordering information: This journal article can be ordered from
http://www.tandfonline.com/pricing/journal/RJTE20

DOI: 10.1080/09638199.2024.2389871

Access Statistics for this article

The Journal of International Trade & Economic Development is currently edited by Pasquale Sgro, David E.A. Giles and Charles van Marrewijk

More articles in The Journal of International Trade & Economic Development from Taylor & Francis Journals
Bibliographic data for series maintained by Chris Longhurst ().

 
Page updated 2025-09-05
Handle: RePEc:taf:jitecd:v:34:y:2025:i:6:p:1444-1482