Bilateral J-Curve Between the UK Vis-A’-Vis Her Major Trading Partners

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