Bahmani-Oskooee and Ratha, International Journal of Applied Economics, 4(1), March 2007, 1-13 1

The Bilateral J-Curve: Sweden versus her 17 Major

Trading Partners
Mohsen Bahmani-Oskooee and Artatrana Ratha
The University of Wisconsin-Milwaukee and St Cloud State University

______________________________________________________________________________

Abstract The main purpose of this paper is to use disaggregate data at bilateral level between
Sweden and her 17 trading partners and investigate the short-run and the long-run effects of real
depreciation of Swedish krona on her bilateral trade balances. The methodology that deemed to
be appropriate and is said to achieve our goal of investigating both effects at the same time is the
bounds testing approach. The empirical results reveal that depreciation of krona has short-run
effects on the trade balance in 14 out of 17 cases. However, the J-curve effect is present only in
five cases, i.e., in the trade balance between Sweden and Austria, Denmark, Italy, Netherlands,
and the U.K. In majority of the cases, the short-run effects do not last into the long run.

Keywords: Bilateral J-Curve, Bounds Testing, Cointegration, Sweden

JEL Classification: F31

1. Introduction

A traditional method of assessing the impact of currency devaluation on the trade balance prior
to 1973 and of currency depreciation since 1973 has been one of estimating the well-known
Marshall-Lerner (ML) Condition. The ML condition asserts that for a small country if the sum of
import and export demand elasticities add up to more than unity, devaluation or depreciation
could improve the trade balance in the long run. Since introduction of the J-Curve concept by
Magee (1973) researchers have tried to distinguish the short-run response of the trade balance
from its long-run response. Magee postulated that in the short run due to adjustment lags, it is
possible for the trade balance to deteriorate first and improve later, resulting in a pattern of
movement that resembles the letter J, hence the J-Curve phenomenon. Since its introduction
researchers have tried to test the J-Curve for almost every country. Bahmani-Oskooee and Ratha
(2004) provide a detailed review of the literature.

From the literature we gather that some countries have received relatively more attention than the
others. Since this paper concentrates on the experience of Sweden with the J-Curve, a short
review of the related studies could set the stage for this paper so that we can easily distinguish
the contribution of this paper from the others. Sweden was one of many countries for which
Bahmani-Oskooee and Niroomand (1998) estimated the Marshall-Lerner condition using
Johansen’s cointegration and maximum likelihood approach. They showed that there exist two
 Bahmani-Oskooee and Ratha, International Journal of Applied Economics, 4(1), March 2007, 1-13 2

cointegrating vectors. While in the first vector the ML condition was not met, in the second one
it was. However, Bahmani-Oskooee and Niroomand failed to adjust Johansen’s λ-max and trace
statistics for number of observations, number of variables and number of lags imposed on the
VAR. Following Cheung and Lai (1993, p. 317) once the adjustment is made, the results show
that there is only one vector and estimate of this vector (i.e., the first vector) fails to support the
ML condition, implying that in the long run depreciation of Swedish krona cannot improve her
trade balance with the rest of the world.

The ML condition is an indirect method of assessing the impact of currency depreciation on the
trade balance. Existing time-series techniques allow us to test directly the long-run relationship
between the trade balance and the exchange rate. This is exactly what Hacker and Hatemi-J.
(2003) do for five small north European countries including Sweden. They directly relate a
measure of the trade balance to real effective exchange rate in addition to domestic and world
income. Although they apply Johansen’s cointegration technique to justify the long-run
relationship, they do not report cointegration test results, nor do they report estimates of
cointegrating vectors. They then use an error-correction model and engage in impulse response
analysis and provide support for the J-Curve for most cases including Sweden.

The two studies reviewed above use aggregate data between Sweden and the rest of the world
and could suffer from aggregation bias. To overcome the bias, Hatemi-J. and Irandoust (2005)
disaggregate the data and estimate the ML condition between Sweden and her six major trading
partners using annual data over 1960-99 period. Their bilateral trade elasticities reveal that
except for the case of Germany, the ML condition is not satisfied at bilateral level, implying that
real depreciation of krona has no long-run favorable impact on the trade balance between
Sweden and each of the remaining five trading partners (i.e., Denmark, France, Norway, the UK
and the US). Australia could also be added to the list of five partners due to evidence from
Bahmani-Oskooee et al. (2005) who investigated the short run and the long run effects of real
depreciation of the Australian dollar on her bilateral trade balance with her 23 partners that
included Sweden. They showed that while real depreciation of the Australian dollar against
Swedish Krona had short-run effects on Australia-Sweden bilateral trade balance, these effects
did not last into the long run. Finally, bilateral trade flow models between Sweden and her eight
trading partners were subject to panel cointegration analysis by Irandoust et al. (2006). Due to
annual and limited number of observations, they establish cointegration using panel approach
and use the estimates for bilateral analysis. From the estimates they infer that the ML condition
is met between Sweden and only two partners (France and Netherlands)

As the above review indicates the mixed evidence on the effectiveness of depreciation of
Swedish Krona on her bilateral trade balance has been limited to no more than eight major
trading partners from Europe. In this paper we try to assess the short-run as well as the long-run
effects of depreciation of Swedish krona on her bilateral trade balance with her trading partners.
To do so we employ bounds testing approach to error-correction modeling and cointegration
which is designed to capture the short-run and long-run effects of changes in one variable on
another. Furthermore, to make the study as comprehensive as possible, we extend the list of
trading partners to include 17 partners. To learn about the relative importance of each partner, we
report the trade shares as well as the list of the partners in Table 1. The rest of the paper is
organized in the following manner. Section 1 introduces the bilateral trade balance model and the
 Bahmani-Oskooee and Ratha, International Journal of Applied Economics, 4(1), March 2007, 1-13 3

methodology. Section 2 reports the results. Our summary and conclusion are provided in Section
4. Finally, the sources of the data and definition of variables are discussed in an Appendix.

2. The Model and the Methodology

2.1 The Model

Almost every study that has tried to assess the impact of currency depreciation on the trade
balance, has directly related a measure of the trade balance to home income, foreign income, and
a measure of the real exchange rate. Therefore, we follow that tradition in this paper and adopt
the model from Bahmani-Oskooee and Brooks (1998) as outlined by equation (1):

Log TB i, t = α + β Log YS, t + γ LogYi, t + λ Log REX i, t + ε i, t (1)

In (1) TBi is a measure of the trade balance between Sweden and trading partner i. Since the
model is specified in log-linear term, it is defined as the ratio of Swedish exports to partner i over
her imports from partner i.1 The two measures of income are denoted by YS and Yi. While YS
denotes the Swedish income, Yi denotes the income of trading partner i. The real exchange rate
between krona and the currency of trading partner i is denoted by REXi. Finally, εi is an error
term. We expect an estimate of β to be negative or positive. If increase in Swedish income
results in an increase in her imports from partner i, then an estimate of β is expected to be
negative. However, if the increase in Swedish income is due to an increase in production of
import-substitute goods, actually her imports could decrease (Bahmani-Oskooee, 1986). By the
same token, an estimate of γ could also be positive or negative. Finally, as the Appendix
indicates, the real bilateral exchange rate between Swedish krona and trading partner i’s currency
is defined in a way that an increase reflects real depreciation of krona. If real depreciation of
krona against i’s currency is to improve her trade balance with partner i, an estimate of λ is
expected to be positive.

2.2 Methodology

If we estimate equation (1) by any technique, we will only be able to assess the long-run effects
of the right-hand side variables on the dependent variable. Since our purpose is to also assess the
short-run effects of currency depreciation on the bilateral trade balance between Sweden and
each of her 17 trading partners, following recent advances in time-series econometrics we must
specify (1) in an error-correction modeling format. On this regard we follow Pesaran et al.
(2001) as in equation (2):

n n n n
Δ LogTBi,t = α + ∑ωk Δ LogTBi,t −k + ∑β k Δ LogYS,t −k + ∑ γ k Δ LogYi,t −k + ∑ λ k Δ LogREXi,t −k
k =1 k =0 k =0 k =0
(2)
+ δ1LogTBi,t -1 + δ 2 LogYS,t −1 + δ 3 LogYi,t −1 + δ 4 LogREXi,t −1 + u i,t
 Bahmani-Oskooee and Ratha, International Journal of Applied Economics, 4(1), March 2007, 1-13 4

Equation (2) without lagged level variables is a standard VAR model. The linear combination of
lagged level variables is added as a proxy for lagged error-correction term. Are we justified to
add the linear combination of lagged level variables? Pesaran et al. (2001) propose applying the
familiar F test for their joint significance. However, they show that the F test in this context is
non-standard and has its own new critical values that depend upon whether variables in (2) are
integrated of order zero, I(0) or order one, I(1). By assuming all variables are I(1), Pesaran et al.
(2001) provide an upper bound critical value and by assuming all variables are I(0), they provide
a lower bound critical value. For joint significance of all lagged level variables, the calculated F
statistic should be greater than the upper bound critical value which is also an indication of
cointegration among the variables. Since integrating properties of the variables are incorporated
in calculation of the critical values, Pesaran et al. (2001) argue that there is no need for pre-unit-
root testing and variables could be I(1) or I(0) or combination of the two. While this is the main
advantage of this approach, there is another advantage, that is, the short-run and the long-run
effects of the right hand side variables on the dependent variable are assessed simultaneously.
For example, the short-run effects of currency depreciation on the bilateral trade balance are
inferred by the estimates of λK’s. The J-curve will be supported if λ takes negative values at
lower lags and positive values at higher lags. The long-run effects of real depreciation are
inferred by the estimate of δ4 that is normalized by δ1. 2

3. The Results

3.1 The F-Test

The error-correction model (2) is estimated between Sweden and each of her 17 trading partners
identified in Table 1 using quarterly data over the 1980I-2005IV period. One problem in
applying the F test for cointegration is the number of lags that need to be imposed on each first
differenced variable. The evidence from the literature suggests that the results of the F test will
be sensitive to the lag length. To avoid this problem we follow Bahmani-Oskooee and Gelan
(2006) and impose a maximum of 12 lags on each first differenced variable. We then use AIC
criterion and select the optimum number of lags. All results reported, therefore, belong to
optimum models. First, we carry out the F test for the joint significance of all lagged level
variables at optimum lags and report the results in Table 2.

The results in Table 2 reveal that the calculated F statistic is greater than its critical value of 3.52
at the 10% level of significance in all countries except in the results for Australia, Canada, Italy,
Portugal, Switzerland and the U.S., implying that in 11 cases there is evidence of cointegration.
In six countries where the F statistic rejects cointegration, we will proceed with our analysis and
provide an alternative way of supporting cointegration later.

3.2 The Short-Run Results

Next, we consider the short-run coefficient estimates. Since the central theme of the paper is to
infer the J-curve effect, for brevity we only report the short-run coefficient estimates of the
bilateral exchange rate in Table 3.
 Bahmani-Oskooee and Ratha, International Journal of Applied Economics, 4(1), March 2007, 1-13 5

From Table 3 we gather that there are 14 cases in which there is at least one coefficient estimate
that is significant at the 10% level, implying that in these cases the bilateral exchange rate has
short-run effects on the trade balance between Sweden and each of these 14 trading partners. The
exception cases are Australia, Canada, and France. Furthermore, negative coefficients are
followed by positive ones, supporting the J-curve in the cases of Austria, Denmark, Italy,
Netherlands, and the U.K. There is evidence of an inverse J-curve in the results for Japan,
Norway and the U.S.

3.3 The Long-Run Results

The question remains to be answered is: do these short-run effects last into the long-run? To this
end, we report the long-run coefficient estimates in Table 4.

Considering 10% level of significance, Table 4 reveals that the bilateral real exchange rate has
favorable effect on the trade balance in the results for Norway and unfavorable effect in the cases
of Germany, Italy, Switzerland, U.K. and the U.S. Thus, in these five cases, the negative short-
run effects do last into adverse long-run effects. Lack of any significant or adverse long-run
effects of depreciation of Swedish krona on her trade balance with Denmark, France, U.K. and
U.S. is consistent with Hatemi-J. and Irandoust (2005) who used an alternative methodology to
show that the Marshall-Lerner condition is not satisfied in the trade between Sweden and each of
these four countries. However, our finding in the case of Germany contradicts them. Our finding
of, again, no significant impact of the bilateral exchange rate on the trade balance with Australia
is consistent with Bahmani-Oskooee et al. (2005) who investigated the impact of depreciation of
the Australian dollar on her trade balance with her 23 trading partners one of which was Sweden.
Turning to the income effects we gather that Swedish income carries a significant coefficient at
the 10% level in 10 cases. In the cases of Australia, Austria, Denmark, Germany, and Spain the
estimate is negative, implying that economic growth in Sweden that results in more Swedish
imports, has adverse effect on her trade balance with each of these five countries. On the other
hand, in the results for Italy, Netherlands, Portugal, U.K. and the U.S., the estimated income
elasticity is positive. In these cases, increase in Swedish income is due to increase in production
of import-substitute commodities which leads to actually a decrease in Swedish imports from
each of these partners. The decreased imports, in turn, lead to an improvement in the trade
balance of Sweden with each of these partners. As for the effect of trading partner’s income, the
results reveal that Log Yi carries a significant coefficient at the 10% level in 12 cases. While the
estimated elasticity is positive in nine cases, it is only negative in the cases. The positive
elasticity in most cases indicates that as Sweden’s trading partners grow, they import more from
Sweden, leading to an improvement in Sweden’s trade balance with each of these nine partners.
The list includes Australia, Austria, Denmark, Finland, Germany, Japan, New Zealand, Spain
and Switzerland.

3.4 Alternative Evidence of Cointegration

The last question we would like to address using the results reported so far is whether the short-
run adjustment of all variables is toward long-run equilibrium. To answer this question,
following Pesaran et al. (2001) we use the long-run coefficient estimates reported in Table 4 and
calculate the lagged linear combination of all variables in (2) over time and denote it by ECt-1.
 Bahmani-Oskooee and Ratha, International Journal of Applied Economics, 4(1), March 2007, 1-13 6

We then replace the linear combination of the lagged level variables by ECt-1 and re-estimate the
model for each case after imposing the optimum number of lags. A negative and significant
coefficient obtained for ECt-1 will reflect the fact that the adjustment is toward equilibrium.
Furthermore, as argued by (Bahmani-Oskooee and Ardalani 2006), the negative and significant
coefficient of ECt-1 could also reflect cointegration among the variables. The results of this
exercise that are reported in Table 3 clearly support the adjustment toward equilibrium as well as
cointegration in all cases.

4. Summary and Conclusion

Due to adjustment lags, the dynamic short-run path of the trade balance after a devaluation or
depreciation is said to follow the well-known J-Curve phenomenon.3 The literature on the J-
curve is vast and includes testing the phenomenon for almost every country for which data is
available. However, some countries have received more attention than the others. Sweden is one
such country for which previous research has provided mixed and sensitive results depending on
the methodology employed.

In this paper we consider the trade balance between Sweden and her 17 trading partners and
employ bounds testing approach to cointegration and error-correction modeling to investigate the
impact of real depreciation of Swedish krona on her bilateral trade balance with each of her
partners. The advantage of using bounds testing approach is that the short-run and the long-run
effects of depreciation are inferred simultaneously and in one step. Once the method is applied to
the models, the results reveal that real depreciation of krona has short-run effects on the bilateral
trade balance between Sweden and 14 of her trading partners. The short-run effects support the J-
curve phenomenon only in the results for Austria, Denmark, Italy, Netherlands, and the U.K. In
most cases, however, the short-run effects do not last into long-run.

Endnotes

Mohsen Bahmani-Oskooee, Center for Research on International Economics and Department of

Economics, University of Wisconsin-Milwaukee, Milwaukee, WI 53201, E-mail:
bahmani@uwm.edu; Artatrana Ratha, Economics Department, St Cloud State University, St
Cloud, MN 56301, E-mail: aratha@stcloudstate.edu.

1. The ratio is said to be a unit free measure of the trade balance. It also measures the trade
balance in real or nominal terms (Bahmani-Oskooee, 1991).

2. Note that this approach has already been used by Bahmani-Oskooee and Brooks (1999) to
estimate the bilateral J-curves between the U.S. and her six major trading partners.

3. For more on adjustment lags and the J-Curve see Bahmani-Oskooee (1985).
 Bahmani-Oskooee and Ratha, International Journal of Applied Economics, 4(1), March 2007, 1-13 7

References

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Review of Economics and Statistics, 67(3), 500-504.

Bahmani-Oskooee, M. 1986. “Determinants of International Trade Flows: The Case of

Developing Countries,” Journal of Development Economics, 20(1), 107-123.

Bahmani-Oskooee, M. 1991. “Is there a Long-Run Relation between the Trade Balance and the
Real Effective Exchange Rate of LDCs?” Economics Letters, 36(4), 403-407.

Bahmani-Oskooee, M. and F. Niroomand. 1998. “Long-Run Price Elasticities and the

Marshall-Lerner Condition Revisited,” Economics Letters, 61(1), 101-109.

Bahmani-Oskooee, M. and T. J. Brooks. 1999. “Bilateral J-Curve between US and Her

Trading Partners,” Weltwirtschaftliches Archiv, 135(1), 156-165.

Bahmani-Oskooee, M. and A. Ratha. 2004. “The J-Curve: A Literature Review,” Applied

Economics, 36(13), 1377-1398.

Bahmani-Oskooee, M., G. Goswami, and B. Talukdar. 2005. “The Bilateral J-Curve: Australia
versus her 23 Trading Partners,” Australian Economic Papers, 44(2), 110-120.

Bahmani-Oskooee, M. and Z. Ardalani. 2006. “Exchange Rate Sensitivity of U.S. Trade Flows:
Evidence from Industry Data,” Southern Economic Journal, 72(3), 542-559.

Bahmani-Oskooee, M. and A. Gelan. 2006. “Black Market Exchange Rate and Productivity Bias
Hypothesis,” Economics Letters, 91(2), 243-249.

Cheung, Y-W. and K. S. Lai. 1993. “Finite-Sample Sizes of Johansen’s Likelihood Ratio Tests for
Cointegration,” Oxford Bulletin of Economics and Statistics, 55(3), 313-328.

Hacker, R. S. and A. Hatemi-J. 2003. “Is the J-Curve Effect Observable for Small North
European Economies?” Open Economies Review, 14(2), 119-134.

Hatemi-J., A. and M. Irandoust. 2005. “Bilateral Trade Elasticities: Sweden versus her Major
Trading Partners,” American Review of Political Economy, 3(2), 38-50.

Irandoust, M., K. Ekblad, and J. Parmler. 2006. “Bilateral Trade Flows and Exchange Rate
Sensitivity: Evidence from Likelihood-Based Panel Cointegration,” Economic Systems, 30(2), 170-
183.

Magee, S. P. 1973. “Currency Contracts, Pass-through, and Devaluation,” Brookings Papers on

Economic Activity, 1, 303-323.
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Pesaran, M. H., Y. Shin, and R. J. Smith. 2001. “Bounds Testing Approaches to the Analysis
of Level Relationships,” Journal of Applied Econometrics, 16(3), 289-326.
 Bahmani-Oskooee and Ratha, International Journal of Applied Economics, 4(1), March 2007, 1-13 9

Appendix

Data Definition and Sources

All data are quarterly form the period 1980I-2005IV and come from the following sources:

a. Direction of Trade Statistics of IMF (CD-ROM).

b. International Financial Statistics of IMF (CD-ROM).

Variables

TBi = Sweden’s trade balance with her trading partner i defined as the ratio of Sweden’s
exports to i over her imports from i (exports and imports are collected from source a).

Yi = Index of real GDP of country i (collected from source b).

YS = Index of real GDP of Sweden (collected from source b).

REXj = Bilateral real exchange rate between the Swedish Krona and trading partner i’s
currency. It is defined as (Pi*Ei )/ PS where Pi is the CPI in country i, PS is the CPI in
Sweden, and Ei is the nominal exchange rate between Krona and trading partner i’s
currency defined as number of krona per unit of i’s currency. Thus an increase in REXj is
a reflection of real depreciation of Krone relative to j’s currency.
 Bahmani-Oskooee and Ratha, International Journal of Applied Economics, 4(1), March 2007, 1-13 10

Table 1. Sweden’s Trade Shares with Her Trading Partners in 2004

Exports Imports
Trading Partner i Trade share (%)
(millions of dollars) (millions of dollars)
Australia 1320.7 292.5 0.7
Austria 1270.6 1095.4 1.1
Canada 1393.2 339.1 0.8
Denmark 8199.6 9201.5 7.8
Finland 7019.7 6429.4 6.0
France 5886.2 5468.3 5.1
Germany 12499.7 18787.1 14.0
Italy 4544.3 3435.9 3.6
Japan 2270.0 2117.0 2.0
Netherlands 5873.9 6765.6 5.7
New Zealand 177.2 38.4 0.1
Norway 10622.3 7636.9 8.2
Portugal 705.3 374.9 0.5
Spain 3617.1 1603.0 2.3
Switzerland 1356.3 1181.7 1.1
United Kingdom 9604.7 7468.4 7.6
United States 13145.2 3493.7 7.5
INDUSTRIAL
81741.8 96926.2 80.0
COUNTRIES
WORLD 100220.0 122994.6 223214.6

Note: Together these 17 countries accounted for 74% of Sweden’s trade with the Rest of the world.
 Bahmani-Oskooee and Ratha, International Journal of Applied Economics, 4(1), March 2007, 1-13 11

Table 2. The Result of F-Test for Cointegration Among the Variables of Bilateral Trade
Balance Model between Sweden vis-à-vis her Trading Partners

Trading Partner i Calculated value of F-Statistic

Australia F(8,1,7,12)=6.63
Austria F(3,7,3,0)=1.72
Canada F(4,0,1,0)=3.48

Denmark F(6,6,10,0)=3.78

Finland F(2,5,2,0)=4.07

France F(1,0,0,6)=10.27

Germany F(2,0,3,0)=4.25
Italy F(5,9,0,0)=2.46

Japan F(8,3,7,12)=7.25

Netherlands F(12,12,12,9)=5.15

New Zealand F(12,11,10,12)=8.23

Norway F(12,11,11,12)=9.11
Portugal F(2,1,3,0)=1.53

Spain F(7,7,3,9)=5.50

Switzerland F(2,0,3,0)=2.98
United Kingdom F(1,12,12,12)=10.93

United States F(4,11,0,12)=3.19

Notes:
a. F (8,1,7,12) is the calculated F statistic when 8 lags are imposed on Δ LogTB, 1 lag on Δ Log YS,
7 lags on ΔLog Yi, and 12 lags on Δ Log REX.
b. At the 10% level of significance, the upper bound critical value of F test is 3.52. This comes from
Pesaran et al. (2001, Table CI: Case II, p. 300).
 Bahmani-Oskooee and Ratha, International Journal of Applied Economics, 4(1), March 2007, 1-13 12
Table 3. Coefficient Estimates of Exchange Rate and Error Correction Term Based on Akaike Information Criterion

Lags of Δ Log REX

Trading
EC(-1)
Partner
0 1 3 4 5 6 7 8 9 10 11
-0.63 -0.79
Australia
(1.13) (3.89)
-0.24 -0.10 -0.05 -0.23 -0.002 0.26 0.12 -0.39
Austria
(3.76) (1.43) (0.78) (3.48) (0.03) (3.66) (1.52) (2.82)
0.23 -0.59
Canada
(0.12) (3.35)
-0.30 0.31 0.33 0.11 0.28 0.50 -0.66
Denmark
(1.41) (1.38) (1.52) (0.52) (1.40) (2.43) (3.55)
0.01 -0.03 -0.02 -0.13 0.11 -0.35
Finland
(0.21) (0.72) (0.50) (3.12) (2.37) (3.61)
-0.29 -0.73
France
(1.52) (6.66)
-0.25 -0.66
Germany
(2.36) (5.20)
-0.75 0.80 0.49 0.41 0.27 0.88 0.58 0.26 0.45 -0.52
Italy
(2.50) (2.64) (1.87) (1.46) (1.07) (3.58) (2.45) (1.04) (1.82) (4.05)
0.17 0.31 -0.53 -0.34
Japan
(0.52) (0.95) (1.74) (4.13)
-0.91 0.62 0.94 0.40 0.42 1.17 0.73 0.51 0.03 0.16 -0.01 1.31 -0.65
Netherlands
(2.39) (1.31) (1.97) (0.87) (0.92) (2.80) (1.82) (1.25) (0.07) (0.42) (0.03) (3.64) (4.25)
New -0.36 -0.13 2.27 0.07 -1.88 -2.45 -0.25 1.37 -2.49 -4.16 -3.68 -0.23
Zealand (0.32) (0.10) (1.78) (0.05) (1.48) (1.83) (0.21) (1.24) (2.17) (3.63) (3.73 (5.54)
1.45 -0.88 -0.36 -1.58 -0.21 0.18 -0.87 -0.42 -0.40 -0.35 -1.10 -0.87
Norway
(3.11) (1.76) (0.73) (3.24) (0.40) (0.04) (1.60) (0.85) (0.77) (0.78) (2.50) (4.59)
-0.95 -0.33
Portugal
(1.84) (4.52)
-0.72 0.28 -1.41 1.18 -1.28 0.72 0.73 -0.66
Spain
(1.35) (0.40) (2.18) (1.97) (2.22) (1.26) (1.45) (5.00)
-0.22 -0.36
Switzerland
(2.02) (3.44)
United -0.67 1.38 1.18 1.18 1.00 1.09 1.28 1.54 1.25 0.65 0.64 0.62 -0.79
Kingdom (1.99) (3.54) (2.95) (3.17) (2.65) (2.88) (3.20) (3.89) (3.01) (1.68) (1.89) (1.81) (6.47)
United 0.54 0.42 0.52 0.16 0.23 0.25 0.16 0.02 -0.62 -0.39 -0.17
States (1.61) (1.22) (0.48) (0.65) (0.67) (0.47) (0.96) (0.06) (1.96) (1.21) (2.02)

Note: Figures in parentheses represent absolute values of t-statistic.

 Bahmani-Oskooee and Ratha, International Journal of Applied Economics, 4(1), March 2007, 1-13 13

Table 4. Estimated Long Run Coefficients of the Bilateral Trade Balance Model

Trading Partner
Log REXj Log YS Log Yi Intercept
(country j)
0.05 -12.99 8.15 24.11
Australia
(0.13) (5.18) (5.39) (5.00)
-0.21 -2.53 0.75 8.23
Austria
(1.57) (2.09) (2.32) (1.96)
0.39 3.76 -1.76 7.84
Canada
(0.12) (2.13) (1.34) (3.34)
-0.51 -2.18 1.65 2.40
Denmark
(1.78) (5.43) (3.40) (2.41)
0.12 -1.16 1.74 2.35
Finland
(1.61) (1.52) (2.63) (1.43)
-0.39 0.29 -0.35 0.50
France
(1.57) (0.51) (0.65) (0.76)
-0.38 -1.81 1.55 1.45
Germany
(2.52) (8.07) (8.91) (3.15)
-2.36 1.38 -0.06 -18.48
Italy
(3.92) (2.77) (0.14) (4.56)
0.003 -1.69 3.31 -7.24
Japan
(0.004) (1.22) (3.42) (1.65)
-1.06 2.24 -2.02 0.38
Netherlands
(1.57) (2.39) (2.74) (0.31)
0.62 -2.01 1.77 1.49
New Zealand
(1.06) (1.55) (1.67) (0.91)
1.08 2.08 -1.97 -0.50
Norway
(2.12) (1.46) (2.24) (0.19)
1.14 3.08 -0.59 -7.61
Portugal
(1.59) (1.90) (0.44) (1.49)
0.86 -2.84 2.14 6.14
Spain
(0.91) (2.46) (2.37) (1.28)
-0.60 -1.18 2.31 -4.01
Switzerland
(2.27) (1.56) (2.36) (2.63)
-2.62 9.86 -5.63 -12.55
United Kingdom
(9.01) (6.06) (4.83) (7.64)
-3.43 5.08 3.45 13.65
United States
(1.85) (2.05) (1.59) (2.61)

Note: Figures in parentheses represent absolute values of t-statistics.