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Economic Change and Restructuring
Erschienen in: Economic Change and Restructuring 1/2022

20.10.2020

Do exchange rate changes have threshold effects on the trade balance? Evidence from Tunisia

verfasst von: Makrem Ben Doudou, Ridha Nouira, Sami Saafi, Aram Belhadj

Erschienen in: Economic Change and Restructuring | Ausgabe 1/2022

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Abstract

The main objective of this paper is to shed new light on the nonlinear relationship between exchange rate changes and trade balance. Different from previous studies, this study applies the threshold regression approach of Hansen (J Econometr 93:345–368, 1999; Econometrica 68:575–603, 2000) to explore whether there exist threshold levels of depreciation (or appreciation) in the exchange rate-trade balance nexus. The approach is implemented using data on bilateral trade between Tunisia and 17 of its major trade partners over the period 1984–2016. The findings of this study confirm a non-linear relationship between exchange rate changes and trade balance in Tunisia. More specifically, the results show that above a certain critical value while dinar appreciation will worsen Tunisia’s trade balance, dinar depreciation will improve it.
Vorheriger Artikel Does green finance improve energy efficiency? New evidence from developing and developed economies
Nächster Artikel Correction to: Do exchange rate changes have threshold effects on the trade balance? Evidence from Tunisia

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Fußnoten
1
Data and descriptive analysis are presented in "Appendix 1".
 
2
The threshold levels of depreciation and appreciation are determined endogenously. To estimate the threshold values of NEG and POS, we follow Hansen (1999) by using the grid-bootstrap procedure. The threshold values are selected by minimizing the sum of squared residuals. (See Hansen 1999, for details).
 
3
See “Appendix 1.4”.
 
4
It is important to emphasize that this argument remains valid only over the short term. Indeed, if trade imbalance proves to be structural, the exchange rate instrument becomes useless.
 
5
This finding may stem from the fact that Tunisia’s economy is very open and exports are heavily dependent on imported materials. Then, as its economy grows, it imports more intermediate goods. For more details see Del Prete et al. (2018).
 
6
This result confirms our aforementioned results. Indeed, exchange rate depreciation should be higher (lower) as the trade imbalance is high (low). As a reminder: Tunisia has an important trade deficit with Ukraine and Turkey while it has a trade surplus with Germany.
 
7
Note that such beneficial effects are not found for Turkey. That is, we observe a negative relationship between depreciation and trade balance in both regimes. The main possible explanation for this negative impact is related to the “aggressive” Turkish policy characterized by “trade dumping” on the one hand and the increasing of non-tariff barriers on the other hand, the consequence being the inelasticity of demand for Tunisian exports and therefore a decrease in revenue. This is why a negative coefficient for the NEG variable is observed.
 
8
See UNECA (2016).
 
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Metadaten
Titel
Do exchange rate changes have threshold effects on the trade balance? Evidence from Tunisia
verfasst von
Makrem Ben Doudou
Ridha Nouira
Sami Saafi
Aram Belhadj
Publikationsdatum
20.10.2020
Verlag
Springer US
Erschienen in
Economic Change and Restructuring / Ausgabe 1/2022
Print ISSN: 1573-9414
Elektronische ISSN: 1574-0277
DOI
https://doi.org/10.1007/s10644-020-09306-4

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