Testing J-Curve Phenomena for India

Abstract

This paper attempts to examine the relationship between current account balance and Nominal Exchange rate (J-Curve phenomenon) for India. Current Account balance is the great interest because it is the part of Balance of Payment (trade balance) and varies with respect to the number of factors but in this paper my focus is only at the nominal exchange rate. In this paper we will see the effectiveness of devaluation of currency or increment of exchange rate lead to the J-Curve phenomenon or not. To estimate the relationship I have collected the data from 1980 to 2010 (31 observations). I think that it is insufficient data to estimate the long term relationship but we will try to work on this data to find the appropriate relationship. Indian current account been deficit from the long time, there was the surplus only for few years like 2001-2004. The reason behind this may be huge imports or more government expenditure than collected taxes. But Indian GDP is keep on growing with time.