Is there an S-curve relationship between U.S. trade balance and terms of trade? An analysis across industries and countries

Abstract

A key relationship in international economics is that between trade flows and exchange rates. This paper examines the empirical evidence of S-curve relationship between U.S. trade balance and terms of trade both at the aggregated and disaggregated level from 1989Q1 to 2010Q4. I find evidence of an S-curve for U.S. total trade in all goods and services with the rest of the world, as well as that for overall manufacturing and non-manufacturing categories. I further examine the top 20 industries at the SITC 3-digit level, and find evidence of an S-curve in 15 industries. Finally, the relationship is explored with the major trading partners in each of these twenty industries, also yielding positive evidence for several nations.S-curve, trade balance, terms-of-trade, real exchange rates