Gour Gobinda Goswami

How sensitive are Britain's inpayments and outpayments to the value of the British pound

Purpose – To avoid aggregation bias by using trade data at bilateral level so that we can determine how sensitive are Britains inpayments and outpayments to the value of the British pound. Design/methodology/approach – The method is based on the bounds testing approach to cointegration and error-correction modeling. Findings – The main finding is that while UK inpayments are not sensitive to the exchange rate, her outpayments are. Research limitations/implications – Future research must concentrate on disaggregating data further, perhaps at commodity level. Practical implications – The results could be used to identify Britains trading partners against which Britain can devalue the pound and improve her trade balance. Originality/value – No study has attempted to test the impact of real depreciation of the pound on Britains payments and receipts with her major trading partners.

Exchange rate sensitivity of Japan’s bilateral trade flows

The traditional way of assessing the impact of currency depreciation on the trade balance has been to estimate the elasticity of trade volume to relative prices. To this end, most previous studies used aggregate trade data. To shy away from problems associated with using aggregate data, recent studies have relied on bilateral trade data. Since import and export price data is not available on bilateral level, this study proposes an alternative way of assessing the impact of currency depreciation on bilateral trade flows. The models are applied between Japan and her nine largest trading partners using recent advances in time-series modeling.

A disaggregated approach to test the J-Curve phenomenon: Japan versus her major trading partners

A limited number of studies have tested the J-Curve phenomenon using bilateral trade data between the United States and its major trading partners. In this paper, we test the J-Curve hypothesis by using quarterly bilateral data over the 1973–98 period between Japan and its nine major trading partners. We demonstrate that when aggregate data are used, there is no evidence of the J-Curve in the short run or any significant relation between trade balance and effective exchange rate in the long run. However, when bilateral data are employed, we find evidence of the J-Curve between Japan and Germany as well as between Japan and Italy. We also find that real depreciation of the yen has favorable long-run effects in the cases of Canada, the United Kingdom, and the United States.

Bilateral J-curve between India and her trading partners

India, a land of over one billion people and one of the newly emerging industrial powers in the world, is going through a slow but steady metamorphism. For centuries, India has played a major role in the international trade. It was not uncommon to see her ships carrying silk and spices across the Arabian seas and bringing back machine-made textile. Invasions of India first by Mughals and latter by the British through the East India Company were all trade oriented. India’s presence in the world trade is relatively small at this time but is gaining momentum. After independence in 1947, India for a brief period experimented with socialism. The Five Year plans were mainly focused towards building infrastructure and development of small-scale agriculture based industries. The industrial development even though extremely important for growth, played a secondary role. The foreign investment was encouraged but only in the selected sectors of the economy. However, threat of nationalization, a large bureaucracy, corruption, lack of understanding of the Indian business practices and the requirement that a major share holder must be an Indian national, discouraged foreign capital investment in India. During 1991-1992, India adopted a policy of trade liberalization. To attract foreign capital and to encourage Non-resident Indians to invest in their home country, Government of India established a separate unit within the Home Ministry whose main function was to expedite processing of applications. India also relaxed the requirement that a major partner be an Indian national. India provided export subsidies to the exporters in terms of cash as well as foreign exchange so that they could import machines and raw materials. Exports responded to the trade liberalization and increased from 44 041 crores of rupees in 1991–1992 to 141 603 crores in 1998–1999 where one crore is equivalent to ten million. In US dollar terms at a current exchange rate of 42.48 rupees per dollar, this translates to an increase from

Bilateral J-curve between the UK vis-à-vis her major trading partners

10.37 billion to

Does political risk deter FDI inflow

33.34 billion over eight years. India also anticipates that through a major increase in the information technology, mainly software industry, her exports will increase to 90 billion by 2005. The trade liberalization has been accompanied by changes in the monetary policies. The inflation rate has been reduced from about 12% to 9% per year, the interest rates have declined from 14% to 10% and the exchange rate has been allowed to respond to market forces. As a result from 1991–1992 to 1998–1999, the rupee has declined from 19.62 rupees per dollar to 42.48 rupees per dollar. By December 2000 rupee had further devalued to 46.25 per dollar with a hope that it will further boost India’s exports and improve her trade balance. However, the impact of currency depreciation on the trade balance is not instantaneous. Indeed, there is ample evidence in the literature that after currency depreciation, the trade balance worsens in the short-run before improving in the long-run. Since this pattern of movement of the trade balance over time resembles the letter J, Magee (1973) labelled it the J-curve phenomenon. Magee argued that after devaluation, contracts that are in transit at old exchange rates dominate the short-run response of the trade balance. Over time, new contracts at new prices begin to exert their favourable impact. At this stage, elasticities may increase leading to an eventual improvement in the trade balance. Of course, the delayed response could also be due to lags in the process of increasing the production of exportables. Junz and Rhomberg (1973) have identified five lags, namely, recognition lags, decision lags, delivery lags, replacement lags and production lags. Only after the realization of these lags, the trade balance could improve. Early studies that tried to investigate the impact of currency depreciation on the trade balance relied upon estimating the Marshall-Lerner condition. The condition

The Impact of Corruption on the Black Market Premium

Currency depreciation is said to worsen the trade balance first before resulting in an improvement, yielding a short-run pattern labelled the J-curve phenomenon. While early studies tested the J-curve by using aggregate trade data, a few recent studies have employed bilateral data, mostly between the US and her major trading partners. In this paper we extend the literature by considering the experience of the UK. We test the phenomenon between the UK and her twenty major trading partners by employing data over 1973Q1–2001Q3 period. In most instances, we find no support for the J-curve in the short-run. In the long run, only in five cases has the exchange rate had significant impact on the bilateral trade balance.

The bilateral J‐curve: Canada versus her 20 trading partners

Purpose – In todays increasingly globalized world, foreign direct investment (FDI) is a hotbed for discussion. Numerous studies have been undertaken regarding FDI, its determinants and benefits, but very few works provide importance to the effect of political risk on the inflow of FDI. Some papers introduce institutional or governance issues in determining FDI inflow, but a comprehensive framework in this respect is non-existent. With this end in view, the authors take 146 countries worldwide over a period of 1984-2009 and then classify countries as OECD or non-OECD members to see whether there is any difference in the nature of the effect. The study keeps other possible determinants of FDI – market size, growth rate of real GDP, trade openness, infrastructural facilities as control variables while considering the effect of underlying political risk factors in deterring the FDI. Design/methodology/approach – This paper looks at the effect of political risk on FDI by using a systematic approach of factor ...

BLACK MARKET PREMIUM AND INCOME DISTRIBUTION

Recently the impact of institutional factors on macro variables has been gaining momentum. Researchers have investigated the impact of corruption, law and order, and bureaucracy on economic growth, inflation, investment, productivity, and the real exchange rate. In this article, we investigate empirically the impact of institutional factors on the black market premium. In many developing nations, because of government restrictions on capital and trade flows, there exists a black market for foreign exchange. By using data from 60 developing countries over the 1982-1995 period, we show that the black market premium is higher in countries that are plagued by more corruption. This finding seems to be insensitive to five different measures of corruption as well as whether cross-section or panel data are used.

Pooled Mean Group Estimation of the Bilateral Trade Balance Equation: USA vis‐à‐vis her Trading Partners

There is a common belief that currency depreciation worsens the trade balance in the short run and improves it in the long run resulting in the so called J‐curve phenomenon. Early studies employed aggregate data and provided mixed results. Recent studies, however, have employed disaggregated data to remove any aggregation bias from their analysis. In this article we consider the Canadian experience and test the phenomenon between Canada and her 20 major trading partners. Using quarterly data and the bounds testing approach to cointegration, and error‐correction modelling we were able to provide support for the J‐curve in 11 out of 20 cases.