J-Curve Dynamics and the Marshall-Lerner Condition: Evidence from Azerbaijan

This paper seeks empirical evidence for the J-curve and the Marshal-Lerner condition for Azerbaijan. The results suggest that a real depreciation of the Azerbaijani Manat would cause a decline in the balance of trade in the short-run and an increase in the long-run. When including the prices of exports and imports into the analysis, the robustness test shows that the terms of trade ratio diminishes following the devaluation and does not return to its pre-depreciation level in the long-run, while the balance of trade continues to improve. This points at the presence of an underlying volume effect as the key driver of the trade balance growth. Overall, the results of this study suggest a fulfillment of the Marshall-Lerner condition criteria, indicate the existence of the J-curve, and the price and volume effects.