Bosnia and Herzegovina vs. Her Trading Partner from Southeast Europe

Safet Rasim KURTOVIC, Blerim HALILI, Nehat MAXHUNI


Abstract. It is well known that there is a strong relationship between real depreciation of the real exchange rate and the trade balance. Therefore, in this paper we investigated the presence of the J-curve between Bosnia and Herzegovina and seven leading trading partners in Southeast Europe. In the study we have used time series of disaggregated data from 1999 to 2015 and econometric techniques such as co-integration analysis, vector error correction, Johansen's co-integration test, diagnostic tests and tests of stability. The results have shown that there is a co-integration and the presence of the phenomenon of J-curve in the case of Romania and Bulgaria, while this effect is absent in other countries.

Keywords. Trade balance, J-curve, Exchange rate, Cointegration, Elasticity.

JEL. F14, F31, F32.


Trade balance; J-curve; Exchange rate; Cointegration; Elasticity.

Full Text:


Aftab, Z., & Khan, S. (2008). Bilateral J-Curves between Pakistan and her trading partners. PIDE Working Papers, No. 45. [Retrived from].

Akbostancı, E. (2002). Dynamics of the trade balance: The Turkish J-Curve. ERC Working Papers in Economics, No. 01/05. [Retrived from].

Arshad, H., & Nasir, M.Z. (2008). Macroeconomic factors and equity prices: An empirical investigation by using ARDL approach. The Pakistan Development Review, 47(4), 501–513.

Bahmani-Oskooee, M. (1985). Devaluation and the J-Curve: Some evidence from LDCs. The Review of Economics and Statistics, 67(3), 500-504. doi. 10.2307/1925980

Bahmani-Oskooee, M. (1986). Determinants of international trade flows: The case of developing countries. Journal of Development Economics, 20(1), 107-123. doi. 10.1016/0304-3878(86)90007-6

Bahmani-Oskooee, M., & Kantipong, T. (2001). Bilateral J-Curve between Thailand and her trading partners. Journal of Economic Development, 26(2), 107-117.

Bahmani-Oskooee, M., & Goswami, G.G. (2003). A disaggregated approach to test the J-Curve phenomenon: Japan versus her major trading partners. Journal of Economics and Finance, 27(1), 102-113. doi. 10.1007/BF02751593

Bahmani-Oskooee, M., & Kutan, M.A. (2006). The J-Curve in the emerging economies of Eastern Europe. Working Paper Series EMG-01. [Retrived from].

Bahmani-Oskooee, M., & Ratha, A. (2007). The bilateral J-Curve: Sweden versus her 17 major trading partners. International Journal of Applied Economics, 4(1), 1-13.

Bhatta, R.S. (2011). Stability of demand for money function in Nepal: A cointegration and error correction modeling approach. MPRA Paper, No. 41404. [Retrived from].

Centralna Banka B&H (2015). Bilten 4. Sarajevo: Centralna banka B&H.

Dwyer, P.G. (2015). The Johansen Tests for Cointegration. [Retrived from].

Goldstein, M., & Khan, M.S. (1976). Large versus small price changes and the demand for imports. IMF Staff Papers, 23, 200–225. doi. 10.2307/3866671

Goldstein, M., & Khan, M.S. (1978). The supply and demand for exports: A simultaneous approach. The Review of Economics and Statistics, 60(2), 275-286. doi. 10.2307/1924981

Greene, H.W. (2008). Econometric analysis. 6th edition. Prentice Hall: New Jersey.

Gylfason, T., & Risager, O. (1984). Does devaluation improve the current account? European Economic Review, 25(1), 37-64. doi. 10.1016/0014-2921(84)90070-9

Hacker, S. R., & Hatemi-j, A. (2003). Is the J-Curve effect observable for small North European economies? Open Economies Review, 14(2), 119–134. doi. 10.1023/A:1022357828945

Halicioglu, F. (2007). The bilateral J-curve: Turkey versus her 13 trading partners. MPRA Paper, No. 3564. [Retrived from].

Harvey, H. (2013). Exchange rate sensitivity in the Philippines: Does the J-curve exist? Asian Journal of Business and Management Sciences, 2(10), 51-61.

Haynes, S.E., & Stone, J.A. (1983). Secular and cyclical responses of the US trade to income: an evaluation of traditional models. The Review of Economics and Statistics, 65(1), 87–95. doi. 10.2307/1924412

Hill, R., Griffiths E.W., & Lim, C.G. (2011). Principles of Econometrics. 4th Edition, New York: John Wiley & Sons, Inc.

Hjalmarsson, E., & Österholm, P. (2007). Testing for cointegration using the Johansen methodology when variables are near-integrated. IMF Working Paper WP/07/141. [Retrived from].

Ho, S.H., Wei, X., & Wong, C.W. (2002). The effect of outward processing trade on wage inequality: The Hong Kong case. [Retrived from].

Hsing, Y. (2008). A study of the J-Curve for seven selected Latin American countries. Global Economy Journal, 8(4), 1-12. doi. 10.2202/1524-5861.1438

Johansen, S. (1988). Statistical analysis of cointegration vectors. Journal of Economic Dynamics and Control, 12(2–3), 231–254. doi. 10.1016/0165-1889(88)90041-3

Johansen, S. (1991). Estimation and hypothesis testing of cointegration vectors in Gaussian vector autoregressive models. Econometrica, 59(6), 1551–1580. doi. 10.2307/2938278

Johansen, S. (1995). Likelihood-Based Inference in Cointegrated Vector Autoregressive Models. New York: Oxford University Press. doi. 10.1093/0198774508.001.0001

Johansen, S. (2000). Modelling of cointegration in the vector autoregressive model. Economic Modelling, 17(3), 359-373. doi. 10.1016/S0264-9993(99)00043-7

Junz, H., & Rhomberg, R.R. (1973). Price competitiveness in export trade among industrial countries. American Economic Review, 63(2), 412-418.

Kamoto, E.B. (2006). The J-Curve effect on the trade balance in Malawi and South Africa. Master Thesis, The University of Texas, Arlington.

Khieu Van, H. (2013). The effects of the real exchange rate on the trade balance: Is there a J-curve for Vietnam? A VAR approach. MPRA Paper, No. 54490. [Retrived from].

Krueger, A.D. (1983). Exchange Rate Determination. Cambridge: Cambridge University Press.

Krugman, P., & Baldwin, E.R. (1987). The persistence of the US trade deficit. Brookings Papers on Economic Activity, 1(2), 1-43. doi. 10.2307/2534513

Kurtovic, S., Halili, B., & Maxhuni, N. (2016). Bilateral trade elasticity: B&H versus its seven trade partners. MPRA Paper, No. 72297. [Retrived from].

MacKinnon, G.J. (1992). Approximate asymptotic distribution functions for unit roots and cointegration tests. Working Paper, No. 861. [Retrived from].

Magee, S.P. (1973). Currency contracts, pass through and devaluation. Brookings papers on Economic Activity, 1, 303-25. doi. 10.2307/2534091

Marwah, K., & Klein, L.R. (1996). Estimation of J-Curves: United States and Canada, Canadian Journal of Economics, 29(3), 523-540. doi. 10.2307/136248

Nagpal, M. (in press). The J-Curve phenomenon: Myth or reality? - An analysis for India. [Retrived from].

Onafowora, O. (2003). Exchange rate and trade balance in East Asia: Is there a J−curve? Economics Bulletin, 5(18), 1−13.

Pllaha, A. (2013). The "J-Curve" effect in bilateral trade: the impact of currency depreciation on trade balances between Albania and its main trading partners. Working Paper, No.12(51). [Retrived from].

Sahlan, R., Abdull, H., & Boss Abdullah, R.M. (2008). Trade balance and J-Curve phenomenon in Malaysia. Journal Ekonomi Malaysia, 42, 91-104.

Sharma, A., & Panagiotidis, T. (2005). An analysis of exports and growth in India: Cointegration and causality evidence (1971-2001). Review of Development Economics, 9(2), 232-248. doi. 10.1111/j.1467-9361.2005.00273.x

Shin, S.H. (1995). Comparing the robustness of trading systems to higher order uncertainty. [Retrived from].

Siddiqui, S., Zehra, S., Majeed, S., & Butt, S.M. (2008). Export-led growth hypothesis in Pakistan: A reinvestigation using the bounds test. The Lahore Journal of Economics, 13(2), 59-80.

Šimáková, J. (2013). Estimation of the J-Curve effect in the bilateral trade of Hungary. Ekonomická revue - Central European Review of Economic, 16, 183–191. doi. 10.7327/cerei.2013.09.07

Šimáková, J. (2014). The effects of exchange rate change on the trade balance of Slovakia. European Financial and Accounting Journal, 9(3), 50-56. doi. 10.18267/j.efaj.124

Šimáková, J., & Stavarek, D. (2015). The effect of the exchange rate on industry-level trade flows in Czechia. E+M Ekonomie a Management, 8(4), 150-165. doi. 10.15240/tul/001/2015-4-011

Sorensen, E.B. (1997). In Economics, No. 266. [Retrived from].

Spitaller, E. (1980). Short-run effects of exchange rate changes on terms of trade and trade balance, IMF Staff Papers, 27, 320-348. doi. 10.2307/3866715

Stučka, T. (2004). The effects of exchange rate change on the trade balance in Croatia. IMF Working Paper No.04/65. [Retrived from].

Verbeek, M. (2004). A Guide to Modern Econometrics. 2nd Edition. West Sussex: John Wiley & Sons Ltd.



  • There are currently no refbacks.


Turkish Economic Review - Turk. Econ. Rev. - TER -

ISSN: 2149-0414. Editor :   Secretarial:   Istanbul - Turkey.

Copyright © KSP Journals