Testing the J Curve and the Marshall-Lerner Condition: Evidence from Southern African Development Community Countries

Gift Mndaka; Exley Silumbu; Ronald Mangani

doi:doi:10.11648/j.eco.20221103.11

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Testing the J Curve and the Marshall-Lerner Condition: Evidence from Southern African Development Community Countries

Gift Mndaka, Exley Silumbu, Ronald Mangani

Published in Economics (Volume 11, Issue 3)

Received: 9 March 2022 Accepted: 31 March 2022 Published: 5 August 2022

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Abstract

This study seeks to establish if there is empirical evidence in support of a currency devaluation or depreciation by testing the validity of the J-curve and the Marshall-Lerner condition using evidence from SADC member countries. The study objective is twofold; to test if a depreciation or devaluation worsens the trade balance in the short run and to test if a depreciation or devaluation improves the trade balance in the long run. The study adopts Autoregressive Distributed Lagged (ARDL) cointegration technique on a period from 1980 to 2018 for SADC countries using data from the World Development Indicators and the Trade Map. The study finds that the theory holds for Angola at 1.0 percent level of significance; at 5.0 percent level of significance, it holds for; Comoros and Seychelles; and at 10.0 percent level of significance, it holds for Madagascar, Eswatini and South Africa. Lastly, the theory does not to hold for Botswana, the Democratic Republic of Congo, Lesotho, Malawi, Mozambique, Namibia, Tanzania and Zambia. For economies whose results are not consistent with the J curve phenomenon, the study suggests that authorities need not to exclusively rely on the exchange rate policy. Deliberate policies toward export diversification and fiscal policies have to be employed to resolve the financial challenges faced by in the export sector.

Published in	Economics (Volume 11, Issue 3)
DOI	10.11648/j.eco.20221103.11
Page(s)	98-107
Creative Commons	This is an Open Access article, distributed under the terms of the Creative Commons Attribution 4.0 International License (http://creativecommons.org/licenses/by/4.0/), which permits unrestricted use, distribution and reproduction in any medium or format, provided the original work is properly cited.
Copyright	Copyright © The Author(s), 2022. Published by Science Publishing Group

Keywords

Cointegration, J Curve, Trade Balance, Real Effective Exchange Rate, Depreciation

References

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[2]	IMF. (2007). Angola: Selected Issues and Statistical appendix. International Monetary Fund; IMF Country Report No. 07/355.
[3]	Killick, T. (1993). Does the IMF Really Help Developing Countries? London: Overseas Development Institute.
[4]	IMF. (2015, February 2). Mozambique Country Report. Washington D. C.: International Monetary Fund.
[5]	Eurodad. (2018). A Toolkit for Advocacy at the International Monetary Fund. April 2018. Brussels: Eurodad.
[6]	Coomer, J. (2010). Zimbabwe's Economic Crisis & Hyperinflation 1997 - 2009.
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[8]	Salvatore, D. (2013). International Economics. Trade and Finance. 11th Edition. Danvers: John Wiley & Sons, Inc.
[9]	Chiloan, L. (2014). The Relationship between the Exchange Rate and Trade Balance in South Africa. Johannesburg: Journal of Economic and Financial Sciences \| JEF \| July 2014 7 (2), pp. 299-314.
[10]	Rufindadi, A. (2014). An Econometric Estimation and Prediction of the Nominal Effects of Devaluation. Does the Marshall Lerner Assumptions Fit Nigeria? International Conference of Business and Economic Research.
[11]	Mangani, R. (2011). The Exchange Rate Sensitivity of Foreign Trade: Evidence from Malawi. Arusha: Trade Policy Training Centre in Africa.
[12]	Bahmani-Oskooee, M. (2012). Is there J Curve in Africa. Milwalkee: International Review of Applied Economics. Vol. 26, No. 1, January 2012, 73–81.
[13]	Musawa, N. (2014). Relationship between Zambia’s Exchange Rates and the Trade Balance – J Curve Hypothesis. Kabwe: International Journal of Finance and Accounting 2014, 3 (3): 192-196. DOI: 10.5923/j.ijfa.20140303.06.
[14]	Balchin, N. (2015). Supporting Economic Transformation in Africa. London: Overseas Development Institute.
[15]	Taye, H. (2012). Is the Bostwana Pula Misaligned.
[16]	Kamwi, M. (2018). Exchange Rate and the Trade Balance. An Empirical Investigation of the J Curve Effect. Lusaka: A dissertation Submitted to the University of Zambia in Partial Fulfillment of the Requirements of the Degree of Master of Arts in Economics.
[17]	Gujarati, D. (2005). Basic Econometrics. 4th ed. New Dehli.
[18]	Wooldridge, J. M. (2013). Introductory Econometric. A Modern Approach. 5th. Edition. South Western: Cengage Learning.
[19]	IMF. (2017). Economic Development Document Malawi. IMF Country Report No. 17/184. Washington: International Monetary Fund.
[20]	Ruhaak, A. (2010). Country Risk Research. Utrecht: Rabobank Netherlands.
[21]	Odhiambo, M. M. (2019). The Role of International Trade in Lesotho’s Economic Growth: A Review. https://www.researchgate.net/publication/313482044: Audoe, Vol. 12, no. 5, pp. 211-226.
[22]	Kamoto, E. (2006). The J Curve Effect on the Trade Balance in Malawi and South Africa. Texas: Presented to the Faculty of the Graduate School of the University of Texas at Arlington in Partial Fulfilment of Master of Arts Economics.
[23]	Michele, C. M. (1997). The Trade Balance and J curve in Malawi. Reserve Bank of Malawi. Lilongwe.
[24]	Biggs, T. (2011). Impact of Exchange Rate Fluctuation of the Mozambique Economy.

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APA Style

Gift Mndaka, Exley Silumbu, Ronald Mangani. (2022). Testing the J Curve and the Marshall-Lerner Condition: Evidence from Southern African Development Community Countries. Economics, 11(3), 98-107. https://doi.org/10.11648/j.eco.20221103.11

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Gift Mndaka; Exley Silumbu; Ronald Mangani. Testing the J Curve and the Marshall-Lerner Condition: Evidence from Southern African Development Community Countries. Economics. 2022, 11(3), 98-107. doi: 10.11648/j.eco.20221103.11

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AMA Style

Gift Mndaka, Exley Silumbu, Ronald Mangani. Testing the J Curve and the Marshall-Lerner Condition: Evidence from Southern African Development Community Countries. Economics. 2022;11(3):98-107. doi: 10.11648/j.eco.20221103.11

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@article{10.11648/j.eco.20221103.11,
  author = {Gift Mndaka and Exley Silumbu and Ronald Mangani},
  title = {Testing the J Curve and the Marshall-Lerner Condition: Evidence from Southern African Development Community Countries},
  journal = {Economics},
  volume = {11},
  number = {3},
  pages = {98-107},
  doi = {10.11648/j.eco.20221103.11},
  url = {https://doi.org/10.11648/j.eco.20221103.11},
  eprint = {https://article.sciencepublishinggroup.com/pdf/10.11648.j.eco.20221103.11},
  abstract = {This study seeks to establish if there is empirical evidence in support of a currency devaluation or depreciation by testing the validity of the J-curve and the Marshall-Lerner condition using evidence from SADC member countries. The study objective is twofold; to test if a depreciation or devaluation worsens the trade balance in the short run and to test if a depreciation or devaluation improves the trade balance in the long run. The study adopts Autoregressive Distributed Lagged (ARDL) cointegration technique on a period from 1980 to 2018 for SADC countries using data from the World Development Indicators and the Trade Map. The study finds that the theory holds for Angola at 1.0 percent level of significance; at 5.0 percent level of significance, it holds for; Comoros and Seychelles; and at 10.0 percent level of significance, it holds for Madagascar, Eswatini and South Africa. Lastly, the theory does not to hold for Botswana, the Democratic Republic of Congo, Lesotho, Malawi, Mozambique, Namibia, Tanzania and Zambia. For economies whose results are not consistent with the J curve phenomenon, the study suggests that authorities need not to exclusively rely on the exchange rate policy. Deliberate policies toward export diversification and fiscal policies have to be employed to resolve the financial challenges faced by in the export sector.},
 year = {2022}
}

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TY  - JOUR
T1  - Testing the J Curve and the Marshall-Lerner Condition: Evidence from Southern African Development Community Countries
AU  - Gift Mndaka
AU  - Exley Silumbu
AU  - Ronald Mangani
Y1  - 2022/08/05
PY  - 2022
N1  - https://doi.org/10.11648/j.eco.20221103.11
DO  - 10.11648/j.eco.20221103.11
T2  - Economics
JF  - Economics
JO  - Economics
SP  - 98
EP  - 107
PB  - Science Publishing Group
SN  - 2376-6603
UR  - https://doi.org/10.11648/j.eco.20221103.11
AB  - This study seeks to establish if there is empirical evidence in support of a currency devaluation or depreciation by testing the validity of the J-curve and the Marshall-Lerner condition using evidence from SADC member countries. The study objective is twofold; to test if a depreciation or devaluation worsens the trade balance in the short run and to test if a depreciation or devaluation improves the trade balance in the long run. The study adopts Autoregressive Distributed Lagged (ARDL) cointegration technique on a period from 1980 to 2018 for SADC countries using data from the World Development Indicators and the Trade Map. The study finds that the theory holds for Angola at 1.0 percent level of significance; at 5.0 percent level of significance, it holds for; Comoros and Seychelles; and at 10.0 percent level of significance, it holds for Madagascar, Eswatini and South Africa. Lastly, the theory does not to hold for Botswana, the Democratic Republic of Congo, Lesotho, Malawi, Mozambique, Namibia, Tanzania and Zambia. For economies whose results are not consistent with the J curve phenomenon, the study suggests that authorities need not to exclusively rely on the exchange rate policy. Deliberate policies toward export diversification and fiscal policies have to be employed to resolve the financial challenges faced by in the export sector.
VL  - 11
IS  - 3
ER  -

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Author Information

Gift Mndaka

Department of Economics, University of Malawi, Zomba, Malawi
Exley Silumbu

Department of Economics, University of Malawi, Zomba, Malawi
Ronald Mangani

Department of Economics, University of Malawi, Zomba, Malawi

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APA Style

Gift Mndaka, Exley Silumbu, Ronald Mangani. (2022). Testing the J Curve and the Marshall-Lerner Condition: Evidence from Southern African Development Community Countries. Economics, 11(3), 98-107. https://doi.org/10.11648/j.eco.20221103.11

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ACS Style

Gift Mndaka; Exley Silumbu; Ronald Mangani. Testing the J Curve and the Marshall-Lerner Condition: Evidence from Southern African Development Community Countries. Economics. 2022, 11(3), 98-107. doi: 10.11648/j.eco.20221103.11

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AMA Style

Gift Mndaka, Exley Silumbu, Ronald Mangani. Testing the J Curve and the Marshall-Lerner Condition: Evidence from Southern African Development Community Countries. Economics. 2022;11(3):98-107. doi: 10.11648/j.eco.20221103.11

Copy | Download

@article{10.11648/j.eco.20221103.11,
  author = {Gift Mndaka and Exley Silumbu and Ronald Mangani},
  title = {Testing the J Curve and the Marshall-Lerner Condition: Evidence from Southern African Development Community Countries},
  journal = {Economics},
  volume = {11},
  number = {3},
  pages = {98-107},
  doi = {10.11648/j.eco.20221103.11},
  url = {https://doi.org/10.11648/j.eco.20221103.11},
  eprint = {https://article.sciencepublishinggroup.com/pdf/10.11648.j.eco.20221103.11},
  abstract = {This study seeks to establish if there is empirical evidence in support of a currency devaluation or depreciation by testing the validity of the J-curve and the Marshall-Lerner condition using evidence from SADC member countries. The study objective is twofold; to test if a depreciation or devaluation worsens the trade balance in the short run and to test if a depreciation or devaluation improves the trade balance in the long run. The study adopts Autoregressive Distributed Lagged (ARDL) cointegration technique on a period from 1980 to 2018 for SADC countries using data from the World Development Indicators and the Trade Map. The study finds that the theory holds for Angola at 1.0 percent level of significance; at 5.0 percent level of significance, it holds for; Comoros and Seychelles; and at 10.0 percent level of significance, it holds for Madagascar, Eswatini and South Africa. Lastly, the theory does not to hold for Botswana, the Democratic Republic of Congo, Lesotho, Malawi, Mozambique, Namibia, Tanzania and Zambia. For economies whose results are not consistent with the J curve phenomenon, the study suggests that authorities need not to exclusively rely on the exchange rate policy. Deliberate policies toward export diversification and fiscal policies have to be employed to resolve the financial challenges faced by in the export sector.},
 year = {2022}
}

Copy | Download

TY  - JOUR
T1  - Testing the J Curve and the Marshall-Lerner Condition: Evidence from Southern African Development Community Countries
AU  - Gift Mndaka
AU  - Exley Silumbu
AU  - Ronald Mangani
Y1  - 2022/08/05
PY  - 2022
N1  - https://doi.org/10.11648/j.eco.20221103.11
DO  - 10.11648/j.eco.20221103.11
T2  - Economics
JF  - Economics
JO  - Economics
SP  - 98
EP  - 107
PB  - Science Publishing Group
SN  - 2376-6603
UR  - https://doi.org/10.11648/j.eco.20221103.11
AB  - This study seeks to establish if there is empirical evidence in support of a currency devaluation or depreciation by testing the validity of the J-curve and the Marshall-Lerner condition using evidence from SADC member countries. The study objective is twofold; to test if a depreciation or devaluation worsens the trade balance in the short run and to test if a depreciation or devaluation improves the trade balance in the long run. The study adopts Autoregressive Distributed Lagged (ARDL) cointegration technique on a period from 1980 to 2018 for SADC countries using data from the World Development Indicators and the Trade Map. The study finds that the theory holds for Angola at 1.0 percent level of significance; at 5.0 percent level of significance, it holds for; Comoros and Seychelles; and at 10.0 percent level of significance, it holds for Madagascar, Eswatini and South Africa. Lastly, the theory does not to hold for Botswana, the Democratic Republic of Congo, Lesotho, Malawi, Mozambique, Namibia, Tanzania and Zambia. For economies whose results are not consistent with the J curve phenomenon, the study suggests that authorities need not to exclusively rely on the exchange rate policy. Deliberate policies toward export diversification and fiscal policies have to be employed to resolve the financial challenges faced by in the export sector.
VL  - 11
IS  - 3
ER  -

Copy | Download