Bangladesh’s Trade Asymmetry: A Deeper Look at the J-Curve with the USA
Abstract
This study explores the J-curve phenomenon in the context of Bangladesh’s bilateral trade with the United States using a non-linear Autoregressive Distributed Lag (NARDL) approach. The J-curve effect describes a country’s initial trade balance worsening following currency depreciation before improving in the long term. We use the NARDL model to examine short-term and long-term dynamics, taking into account the nonlinearities in trade responses using 29 years (1990-2019) trade data of Bangladesh. Given Bangladesh’s significant trade relations with the United States and its reliance on textile and garment exports, understanding the impact of exchange rate fluctuations on the trade balance is critical. The results reveal significant insights into the complex relationship between exchange rates and trade balances. We find evidence suggesting asymmetric effects of currency depreciation on Bangladesh’s trade balance with the USA. The analysis also points out that traditional linear models might not fully capture the dynamics of the J-curve phenomenon. Our findings suggest that currency depreciation in Bangladesh does not necessarily lead to an immediate improvement in the trade balance, challenging the traditional J-curve hypothesis. These findings have broader implications for policymakers in Bangladesh and other developing countries with similar economic structures and trade relationships. By applying a non-linear ARDL approach, this study provides valuable insights into the effects of exchange rate movements on trade dynamics, highlighting the need for more nuanced trade and economic policies to navigate the complex landscape of international trade.
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Copyright (c) 2025 Subroto Dey, Lupa Islam, Moniruzzaman Muzib, Ariful Islam , Sanjoy Kumar Saha
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