Asymmetric effect, non-linear ARDL, and the J – Curve analysis among East African community members

Abstract

When a country’s balance of trade persistently records deficits, the most important policy is to devalue the exchange rate. This article aims to explore the symmetric effect of the exchange rate and its transmission channels on the trade balance. The recently developed method of Non-linear Autoregressive Distributed Lag (ARDL) was utilized for Quarterly data from 1990 Q1 to 2019 Q4 in unexplored areas of East African Community (EAC -5) members. The study found the presence of robust symmetric and asymmetric negative effects of exchange rate changes on trade balance only in Uganda, both in the short-run and long-run. Meanwhile, there was no evidence of robust J-curve phenomena within EAC members. Generally, the application of exchange rate policy in improving trade imbalance is doubted within the EAC region.

Keywords: EAC; Exchange rate; J –curve; nonlinear ARDL.