The S-Curve Dynamics of U.S.-Mexico Commodity Trade

Abstract

In testing the short-run effects of currency depreciation on the trade balance, rather than engaging in regression analysis, part of the literature basically looks at the correlation coefficients between past and future values of the trade balance and the current exchange rate. It is postulated that these coefficients are positive between future values of the trade balance and current exchange rate, but negative between past values of the trade balance and the current exchange rate, hence the S-Curve pattern. Previous research has shown that the curve is not supported for Mexico when aggregate trade data are used. In this paper we used bilateral trade data between Mexico and her main partner, the United States to test the curve. Still there was no support for the curve. However, when we disaggregated bilateral trade flows by industry and considered the trade balances of 223 industries that trade between the two countries, we were able to support the S-Curve in 90 industries.