Abstract
This paper investigates Japanese trade to see whether the J/S-curve phenomenon between net exports and the terms of trade is observed in the data from 1980Q1 to 2008Q3. Based on the results of a VAR stability test, the aggregate trade data are endogenously split into three sub-period data sets, with the J/S-curve present in the last two. The J/S-curve may stem from the increasing share of China and the oil-exporting countries in Japanese trade. In fact, the J/S-curve is observed in the bilateral trade data with those countries but not in the data with Korea or the United States.
Highlights
We follow [11] to investigate the S-curve shape in the trade dynamics with exchange rates, and we extend our inquiry to test whether the Scurve shape has changed over the last few decades
We examine whether a response of net exports (NX) to a shock in the terms of trade (TOT) demonstrates the J-curve
Aggregate Trade with the Rest of the World Based on the results from Figures 4, 5, and 6, and considering that there were noticeable changes in the economic environment around the two break points, we divide the whole period into three sub-periods: (a) 1980Q1 ~1986Q2, (b) 1986Q3~2000Q2, and (c) 2000Q3~ 2008Q3
Summary
For the last few decades, as the Japanese economy has suffered from a stagnant or recessive domestic market, Japan has actively sought out foreign markets to compensate for sluggish domestic demand, resulting in an increase in the ratio of trade volume to GDP. The exportto-GDP ratio and the import-to-GDP ratio rose to 17.7% and 17.5%, respectively, in 2007; they declined to 15.2% and 16.1%, respectively, in 2011. The ratios are far higher than their values in the 1990s. The highest export-to-GDP ratio in the 1990s was 10.8% in 1998, and the highest import-to-GDP ratio in the same decade was 9.7% in 1997. The quarterly trade balance had always been positive for the last two decades until 2008Q31
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