Abstract
Abstract Almost all countries face the problems of trade balance, although they are more inherent in developing countries and economies in transition. A majority of economists adhere to a common opinion that real depreciation may lead to an improvement of trade balance. That said, countries encountering trade balance issues use real exchange rate depreciation in order to improve trade balance. In fact, this research refers to the assessment of bilateral elasticity effect of real exchange rate depreciation and the income on export and import demand function of Serbia and its nine leading partners. 2004Q1-2015Q4 data and ARDL approach have been used in this research. The results obtained show the presence of the J-curve in cases of Germany, Austria and Croatia. On the other hand, we examined if the Marshall-Lerner condition was fulfilled in the case of bilateral trade with Austria. Finally, we found that the elasticity of income has a greater effect on the export and import demand function, in relation to the elasticity of the exchange rate.
Published Version
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