Bilateral Trade Balance Research Articles

Impacts of Regional Integration and Market Liberalization on Bilateral Trade Balances of Selected East African Countries: Potential Implications of the African Continental Free Trade Area

This study examined the effect of free trade on intra-African bilateral trade balances for Kenya, Rwanda, Uganda, and Tanzania to assess the potential implications of the African Continental Free Trade area. The four countries have experienced persistent trade deficits. Whether free trade within Africa can improve the national trade balances, and the drivers of bilateral trade balances are important questions for policy and strategic programmes for the countries to make the most gains from free trade area. The econometric model estimated for each country is an extension of the standard Keynesian model of trade balance to include determinants of bilateral trade flows from the gravity model. Quantitative analysis using panel regression was augmented with qualitative data from interviews with trade policy experts and trade officials from various African countries and focus group discussions with small-scale cross-border traders at the Busia and Namanga border posts in East Africa. Findings show that complete tariff elimination on intra–African trade may not impact the bilateral trade balances of Kenya, Rwanda, and Tanzania but could improve bilateral trade balances for Uganda by 6 percent. Within the free trade areas, Uganda’s bilateral trade balances were higher within the Common Market for Eastern and Southern Africa but lower within the East African Community, than outside these areas. Kenya’s trade balances were lower in the Common Market for Eastern and Southern Africa, than otherwise. On the contrary, no significant difference in trade balances is established for the membership of Kenya, Rwanda, and Tanzania in the East African Community; Rwanda in the Common Market for Eastern and Southern Africa; and Tanzania in the Southern African Development Community, when compared to trade balances with non-members. The importance of macroeconomic factors is demonstrated by the increase in bilateral trade balances with higher relative price levels of trade partners; the reduction with increase in relative production and expenditure capacities of trade partners; and improvements following a depreciation of home currency for Tanzania and Uganda, yet a worsening of trade balances in Kenya. A lack of harmony in documents required for cross-border movements within the free trade areas is reported as counterproductive. All African countries should therefore fully implement protocols and cooperate in the harmonization of trade procedures for the free movement of people and goods across borders. Country policies and trade programmes should pursue increased productivity in the leading intra-African export sectors and diversify exports via foreign direct investment in strategic sectors to substitute imports from outside Africa; reduce costs of production; increase the quality of products; and improve transport infrastructure.

The impacts of exchange rate on US adjusted bilateral trade balance with Germany under Brexit: A comparative analysis

AbstractThis study reveals the hidden dynamics of USA‐Germany international trade through a revised J‐curve hypothesis. It emphasizes the inadequacy of the traditional Bilateral Trade Balance (BTB) ratio based on total exports. To this aim, it introduces two new testing approaches based on adjusted BTB: the GDP‐driven‐BTB‐based J‐curve hypothesis (GDPJ) and the Non‐GDP‐driven‐BTB‐based J‐curve hypothesis (NGDPJ). The empirical findings advocate the necessity of these alternative tests, offering policymakers more informative results than the traditional approach. GDPJ is validated for 13 goods, while NGDPJ and traditional methods are validated for 10 and 8 goods. These results underscore the risks of solely relying on the traditional approach. By embracing the revised J‐curve hypothesis and alternative BTBs, policymakers can gain deeper insights into the USA‐Germany trade relationship. One interpretation is that, under Brexit, German consumers reduce their purchases of re‐exported goods more than domestically produced goods from the US.

ASYMMETRIC J CURVE RELATION BETWEEN TÜRKİYE AND HER EUROPEAN TRADE PARTNERS: A NARDL METHOD

This research delves into the asymmetrical impacts, both short and long term, of the real strengthening or weakening of Türkiye’s currency against that of the 28 European Union member countries, on its bilateral trade balance. The study aims to uncover potential asymmetries in the relationship between Türkiye’s currency depreciation and its trade balance with the EU 28 countries, while also considering the possibility of a J-curve effect. By utilizing the Non-Linear Autoregressive Distributed Lag Model (NARDL) introduced by Shin et al. (2013), which accounts for asymmetric relationships, the analysis examines whether Türkiye’s trade balance with her EU 28 partners reacts differently to currency appreciation and depreciation. The findings from the non-linear ARDL analysis conducted in this study lend support to the hypothesis of an asymmetrical relationship, both in the short and long term, between the real appreciation of foreign exchange rates and Türkiye’s bilateral trade balance with the EU 28 countries, potentially indicating the presence of a J-curve effect.

How Important are Sino-Latin American Trade for Economic Growth? A Trade in Value-Added Perspective

Sino-Latin American trade have increased substantially for decades. However, the increasing trade imbalances between China and several Latin American countries have yielded growing trade frictions. In this paper, we re-calculate the bilateral trade balance using the value-added content in trade and measure the contribution of Sino-Latin American trade to economic growth. The results show that gross trade statistics seriously overestimate the real bilateral trade imbalance, and China’s trade surplus with Mexico decreased by over 50%. The composition of Sino-Latin American trade suggests that most Latin American economies are complementary with Chinese economy. The South-South trade has been increasingly important for both China’s and Latin America’s economic development. We foresee an optimistic future of relations and continuously increasing trade between China and Latin America. Meanwhile, more efforts should be made to settle trade frictions and intensify Sino-Latin American relations.

On the effects of crude oil demand and supply shocks on Korea’s bilateral trade balance: are the effects asymmetry?

ABSTRACT The contribution of the present article is to find any indication of whether three components of oil shocks – oil supply shocks, aggregate demand shocks, and oil-specific demand shocks – asymmetrically influence the bilateral trade balance of Korea with its top 10 partners. We discover that there is evidence that the three oil shocks asymmetrically influence Korea’s trade balance with some of its top 10 partners in the short- and long run. Additionally, the asymmetric impact appears to be a country-specific phenomenon and varies depending on different shock components.

The hidden dynamics of the USA-Mexico trade relationship: a partial export data decomposition approach

ABSTRACT This study employs a unique methodology to uncover the hidden dynamics of the USA-Mexico trade relationship under the United States-Mexico-Canada Agreement (USMCA) agreement. The conventional bilateral trade balance (BTB) only considers total export data, which may need to be revised for testing the J-curve hypothesis since countries (such as the USA) also re-export to their partners (e.g., Mexico). To address this, the study decomposes total export data into re-export data and domestic export data and proposes two new forms of J-curve hypothesis testing: the partial-domestic-J-curve hypothesis BTB and the partial-re-export-J-curve hypothesis BTB. The study's empirical findings suggest that the partial methodology should be used for asymmetric J-curve hypothesis testing in the USA-Mexico trade. The findings also indicate that Mexican consumers are more sensitive to changes in the value of the peso for US domestic products than re-exported products, and they purchased more US domestic products than re-exported products during the COVID-19 pandemic.

Production-Driven and Non-Production-Driven Bilateral Trade Balance: Assessing Trade Deficits between the United States and China and the COVID-19 Epidemic

This study aims to look deeper into the long-standing phenomenon of the United States’ large trade deficits with China by examining both countries’ bilateral trading structures (character). In this investigation, we, for the first time, redefine the traditional bilateral trade balance (BTB) ratio based on economic impact content as production-driven BTB ( X pd ) and non-production-driven BTB ( X npd ). This is done because, while the former undergoes an economic activity within the United States, the latter doesn’t. The traditional ratio, i.e. total export/total import, doesn’t technically allow such an investigation. Hence, the proposed methodology of this study, using these two new forms of BTBs, may provide new perspectives to this phenomenon for U.S. policymakers. The main empirical finding may make it imperative to analyze the US BTB with China using the methodology proposed because the independent variables of the study’s models have different effects on X pd and X npd . For example, while real depreciation in the USD improves X npd for 13 industries, the same change in the USD improves X pd for only seven. Additionally, this methodology allows U.S. policymakers to compare/review the US BTB based on economic impact contents through X pd and X npd separately. Last, it can be interpreted that the United States benefits from decreasing trade-policy uncertainty in the United States.

Revisiting the J-Curve of Indonesia-China bilateral trade

The examination of the J-curve effect has been grown primarily for the case of aggregate trade level in some countries. Most studies assume that the exchange rate affects the dynamics of aggregate trade balance symmetrically. To fill the gap of the empirical studies, this manuscript attempt to revisit the presence of J-curve and analyze the effect of Indonesian Rupiah vis-à-vis Chinese Yuan on bilateral trade balance between Indonesia and China, whether symmetric or asymmetric. We employ autoregressive distributed lag (ARDL) and its partial sum concept of nonlinear manner to estimate quarterly data from 2002:I to 2017:IV. The result shows evidence of the asymmetric effect of the exchange rate on the trade balance, and the nonlinear approach provides more support to discover the presence of the J-curve impact of bilateral trade between Indonesia and China.

The Necessity of New Versions of Bilateral Trade Balances and COVID-19: The Nonlinear ARDL Approach for the USA and Japan

This study aims to reveal the need to reformulate new forms of Bilateral Trade Balances (BTBs) for a country rather than a traditional BTB. This is because the traditional BTB ratio, based on total exports and defined as the total exports/total imports ratio, cannot classify and quantify a BTB based on its economic impact content. It fails to classify because countries also export goods already imported (denotes re-export) besides exporting their domestic goods produced within the country (denotes domestic export). It also fails to quantify because, while domestic goods undergo a value-added process within a country, re-exported goods do not. In this context, for the first time, this study attempts to reformulate/reinvestigate new forms of BTBs as production-related BTB, based on domestic export and non-production-related BTB, based on re-export for the USA with Japan. Empirical findings confirm the necessity and cruciality of the proposed methodology in this study. JEL Codes: F10, F14

The Bilateral USA-Mexico Trade Balances Under Decomposed Export Data

The Bilateral USA-Mexico Trade Balances Under Decomposed Export Data

Improving Indonesia's Trade Balance with the United States: Factors Affecting Bilateral Trade

This research is based on a systematic review approach that differs from reflects the findings in that it is transparent, accessible, and enables a union between the scientific community and practitioners, resulting in an overall synthesis. According to the research findings based on the systematic analysis, the factors influencing Indonesia to engage in bilateral trade with the United States to improve the trade balance fall into two categories: those related to international trade and those unrelated to international trade. Globalization of bilateral commerce, open markets, disparities in natural and human resources, and disparities in natural resources are aspects of bilateral trade. Meanwhile, variables unrelated to bilateral trade include bilateral agreements, trade performance, trade potential, trade balance, and trade relations. As a legal basis for providing legal certainty in commercial cooperation relationships, the Republic of Indonesia and other nations must enter into bilateral agreements.

The US State-Level Wood Product-Based Bilateral Trade Balances with Canada Under the Protectionist US Trade Policy, COVID-19, and Economic Policy Uncertainty

ABSTRACT The US-Canada wood product trade is a longstanding dispute due to protectionist high-tariff policies, further exacerbated by COVID-19 restrictions on US production and exports. This study investigates the J-curve effect at the US state level, revealing that only 11 US states support the asymmetric J-curve for wood products, whereas 10 US states support the asymmetric inverse J-curve (shown in Appendix 2 online). Furthermore, high tariffs imposed by the US improved trade balances for only three states, implying that the high-tariff policy did not enhance the US wood-based trade balance with Canada.

The US State-Level Geographic J-curve Hypothesis Mapping with Canada.

This study creates aUS state-level asymmetric J‑curve hypothesis testing map with Canada. The map may visually present how aUS state policymaker manages bilateral trade balances with Canada. Green-colored US states support the evidence of the asymmetric J‑curve hypothesis, while red-colored and gray-colored states do not. The main empirical finding indicates that the asymmetric J‑curve hypothesis is supported for only 15US states and D.C., shown in green on the map. This suggests that policymakers of these US states may have more sustainable and manageable bilateral trade policies with Canada. If so, policymakers in red/grey US states should reevaluate their bilateral trade policy regulations, especially those related to taxation, budgetary frameworks, energy prices, and other relevant factors that can impact consumer-producer prices and thereby create competitive state-level real exchange rates. By doing so, they may achieve the anticipated positive outcomes of the J‑curve effect to export more.

Food-based bilateral trade balance performances between the United States and Canada under COVID-19.

These maps depict the U.S. states in green and red, indicating support for the J-curve and inverse J-curve hypotheses, respectively. The map on the left was generated using the linear model (symmetric approach), while the map on the right was generated using the nonlinear model (asymmetric approach). The online version contains supplementary material available at 10.1007/s00003-023-01436-x.

The impact of exchange rate changes on the trade balance: Evidence from Saudi Arabia vs her major trading partners

This study aims to analyse the short- and long-term effects of real exchange rate changes on the bilateral trade balance between Saudi Arabia and its major trading partners. The study used the aggregated and disaggregated panel data for the analysis. The autoregressive distributed lag (ARDL) model in error correction is used to analyse the short and long-term relationship between exchange rate and trade balance. It was discovered that the real exchange rate (RER) had no appreciable impact on the trade balance over the long run using the panel data linear ARDL model. The first leg of RER is determined to have a very negative short-term impact on the trade balance. However, the non-linear ARDL model, which took into account non-linear trade balance adjustments in reaction to exchange rate fluctuations, demonstrated a significant and adverse long-term link between the two variables. It shows that depreciation leads to the deterioration of the trade balance. Finally, the study extends the analysis to disaggregated data country-wise. The results of the linear ARDL model revealed that 3 out of 13 cases have significantly short-term relationships. Still, it is observed that no specific short-term patterns are in line with the J-curve hypothesis. The investigation discovered evidence for the J-Curve and the new definition of the J-curve using the non-linear ARDL model in three of the 13 cases. The study concluded that Saudi Arabia must not rely on devaluation as a policy instrument to improve its trade balance. It should maintain its fixed exchange rate for extended periods.

Evaluating the Reasons for India’s Withdrawal from RCEP: A General Equilibrium Analysis

This study identifies and rationalises some of India’s issues and concerns with the signing of the RCEP. By analysing the existing trade balance, import surge trends, dumping and agricultural sensitivities, among other factors, the study justifies India’s decision to remain outside of this mega-FTA. Further, it predicts the impact of tariff elimination under RCEP on various macroeconomic variables of the RCEP member countries by using the GTAP model under two scenarios: (i) India does not join the RCEP and (ii) India joins the RCEP. Results show that India’s GDP would be adversely affected if it joins this agreement, and its overall trade deficit may further deteriorate after joining the RCEP. In terms of the bilateral trade balance, India’s trade deficit with ASEAN and China will grow steeply if it joins the agreement. The study also finds that an RCEP without India may lose its shine as the GDP of most of the other members of the RCEP would be negatively impacted by India’s decision to stay out. JEL Codes: F13, F15, F17, F61, O53

Asymmetric effects of exchange rate on bilateral tourism trade balance: evidence from Turkey

As an emerging economy, Turkey has experienced a significant structural transformation in the last twenty years. Within this period, Turkey has increased to the eleventh rank for international tourist arrivals in the world (UNWTO 2023). However, in recent years, there has been a rapid depreciation of the national currency, raising the question of how this affects the tourism trade. Using bilateral data and considering non-linearities, we investigate the exchange rate-tourism balance nexus for Turkey and its most tourist sender partners by applying ARDL and NARDL modelling. We find that (i) when the Turkish Lira (TL) appreciates, the tourism balance is positively affected in the German and UK models in the short-run and in the Russian and Netherlands models in the long-run; (ii) the depreciation of the TL, on the other hand, has a positive effect on the tourism balances for France and the UK in the short-run. Therefore, either the increase or decrease in the exchange rate (except for Russia in the short-run) affects the tourism balance insignificantly or positively. These findings imply that policymakers should focus more on country-specific tourism policies to attract more tourists to the country rather than on exchange rate policies to manage the tourism balance.

Do currency manipulations hurt US bilateral trade balance?

Do currency manipulations hurt US bilateral trade balance?

The Effects of Currency Devaluation on the Bilateral Trade Balance of Sudan: Cointegration and Error-Correction Modeling

The purpose of this research paper is to investigate the effects of exchange rate, income and money supply on the trade balance of Sudan over a fifty-year period from 1970 to 2020. The empirical model for this investigation is developed using a cointegration approach and error-correction technique to specifically examine the effects of currency devaluation on the trade balance of Sudan with its major partners. The bounds test shows that the variables of interest are bound together in the long-run. The associated equilibrium correction is significant, thus confirming the existence of a long-run relationship. Moreover, to analyze the dynamic interactions of the variables included in the estimated model, variance decomposition is employed. The study results from the variance decomposition show that innovations in foreign income contribute highly to the forecast error variance of the trade balance compared with other explanatory variables in the short-run. In contrast, the domestic money supply contributes highly to the trade balance compared with other variables in the long-run. A key finding of the study suggests that the devaluation of Sudan’s currency is not an appropriate step toward improving the country's trade balance position.

The alternative version of J-curve hypothesis testing: Evidence between the USA and Canada

This study aims to eliminate an embedded data bias in testing the J-curve hypothesis in relevant literature. In all previous trade models about the J-curve, the bilateral trade balance (BTB) ratio, as the dependent variable, is generated and used based on total exports data, i.e. as total exports over total import. However, total exports are the sum of domestic exports and re-exports, and some countries also re-export to their partners. Furthermore, the dynamics and impacts of changing exchange rates on export volumes of domestically produced goods may differ from those on re-exported goods. Therefore, in this study, in testing the asymmetric J-curve hypothesis, we, for the first time, re-define two new proposed forms of BTBs, namely, domestic-export-based J-curve hypothesis BTB and re-export-based J-curve hypothesis BTB, based on domestic exports and re-exports, respectively, for USA–Canada trade. The main finding shows that the numbers of industries that support the asymmetric J-curve concerning these two forms of BTBs are entirely different. While the J-curve is supported by domestic-export-based J-curve hypothesis BTB for 27 industries, it is supported by re-export-based J-curve hypothesis BTB for 38. This support is 22 for the total-export-based J-curve hypothesis BTB.