Devaluation Latin America

Huseyin Kalyoncu et al. • Devaluation and trade balance in Latin American countries Zb. rad. Ekon. fak. Rij. • 2009 • vol. 27 • sv. 1 • 115-128

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Preliminary communication UDC 339.56(8) : 339.15.054.23

Devaluation and trade balance in Latin American countries*
Huseyin Kalyoncu1, Ilhan Ozturk2, Seyfettin Artan3, Kahraman Kalyoncu4
Abstract The aim of this paper is to examine effectiveness of devaluation on the trade balance in four countries: Argentina, Brazil, Mexico and Peru. We use the Johansen-Juselius cointegration test and impulse response function to estimate the long-run and shortrun effects of devaluation on the trade balance. The estimated results suggest that depreciation improve the trade balance in the long run for the case of Argentina and Peru, and in the short-run there has been J-curve in Argentina and Peru. In addition, the cointegration is found among the four variables (trade balance, domestic income, foreign incomes and real exchange rate) in the case of Argentina and Peru. The results also indicate that there is no cointegration relationship between these variables for Brazil and Mexico. The conclusion of the paper is that the evidence of the J-curve pattern was found for Argentina and Peru only. Key words: trade balance, J-Curve, Marshal-Lerner condition, cointegration, impulse response analysis, Latin America JEL classification: F30, F32, F41

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Received: 02-09-2008; accepted: 19-06-2009 Associate Professor, Meliksah University, Faculty of Economics and Business Administration, Kaysery, Turkey. Scientific affiliation: international economics. Phone: [phone]. Fax: [phone]. E-mail: [e-mail] Senior Lecturer, Cag University, Faculty of Economics and Administrative Sciences, 33800, Yenice, Mersin, Turkey. Scientific affiliation: international economics. Phone: [phone]. Fax: [phone]. E-mail: [e-mail] (corresponding author). Assistant Professor, Karadeniz