Nominal effective exchange rate and trade balance adjustment in South Asia countries

Abstract In this paper we examine the short-term and long-term determinants of trade balances of five South Asian countries, using quarterly data from 1985 to 1998. The paper confirms the existence of both short run and long run relationship between nominal effective exchange rates (NEER) and trade balances. This paper highlights the differences in the duration and the extent of the J-curve phenomena. Several plausible explanations consistent with our findings are offered.