Exchange rate and net exports: An analysis for the Brazilian states
Abstract
This paper analyses the short and long run effects of exchange rate devaluation on the net exports, in the trade balance, as well as in the balances of basics and industrial goods for a panel of Brazilian states, making use of Panel Vector Autoregression (PVAR) models and Panel Dynamic Ordinary Least Squares (PDOLS) estimators. The first technique is used to investigate the existence of the J curve phenomenon, and the latter to validate of Marshall-Lerner condition. In all cases, the response of the net exports from that states after an exchange rate devaluation is shown to be positive, thus confirming the Marshall-Lerner condition. This response is greater for trade balance of industrialized goods. As described by the theoretical model, domestic income presents a negative and statistically robust impact in all net exports considered, while foreign income presents a positive effect. The results still show evidence of the J curve for the total and industrialized goods.
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