Does A Real Devaluation Improve The Balance Of Trade?

What is it about?

I construct the nominal and real effective exchange rates for Bangladesh and estimate the impact of a real devaluation on the country‘s trade balance. I find that real exchange rate has a significant positive effect on the trade balance in the long-run. Currency devaluation has been a significant stimulus for the country‘s exports growth and improvement in current account position. However, the J-curve hypothesis can be explained as the appropriate phenomenon to improve its trade balance in response to exchange rate devaluation.

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Why is it important?

The role of exchange rates in international trade in many developing countries are very similar. The findings from this study, therefore, is useful for the policymakers of developing countries to make their exchange rate policy.