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Examination of the J-curve effect in the relationship between exchange rates and foreign trade: The case of Turkey

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2023
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Abstract (EN)

The growth strategy based on exports has become an essential factor in achieving countries' development goals, creating productivity and technology-based diversity in their manufacturing industries' export structures. With the maturation of globalization and the development of export-oriented growth policies, the exchange rate and foreign trade relationship have become increasingly important, and value-added production has also become a significant factor for economic growth. However, if there are issues such as low value-added production and the composition of export goods mainly from imported intermediate inputs, in particular in developing countries, in the event of a currency shock in a floating or fixed exchange rate regime, domestic products will lose value in real terms against foreign products. In economic literature, while a short-term negative impact is seen in the export of the relevant good in the face of currency shocks, the opinion is that a positive effect will emerge in the long term, referred to as the J-curve effect. The OECD categorizes manufacturing industry products into four different categories according to their technological intensity: high, medium-high, medium-low, and low technology. Along with this classification of export goods, possible symmetric/asymmetric short- and long-term relationships between Turkey's real income, the relevant foreign country's real income, and bilateral real exchange rate variables were examined using ARDL/NARDL boundary testing methods for four different technology intensities, using quarterly data for the period of 2003Q1-2020Q4 for the example of countries included in the group. According to the short-term error correction model, the examples of the United States in low-technology-intensive manufacturing and Germany in high-technology-intensive manufacturing support the presence of the J-curve effect in the short term, while according to the long-term equation, the examples of France in medium-high technology-intensive manufacturing support the presence of the J-curve effect in the long term.

Author

Bestehan Ergül

How to Cite

Bestehan Ergül (Master Thesis). Examination of the J-curve effect in the relationship between exchange rates and foreign trade: The case of Turkey, 2023, Pamukkale University.

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