The Bilateral J-Curve Between Yemen and Her Gulf Cooperation Council Trading Partners: An Empirical Analysis Over (1991-2005) Period

Abstract

#This study empirically analyses the bilateral J-Curve dynamic of Yemen with her Gulf Cooperation Council (GCC) trading partners using quarterly time series data over 1991-2005 period. Short- run and long-run impacts of the depreciation of Yemeni Rial on the trade balance between Yemen and her GCC trading partners are estimated from the bound testing approach and error-correction modeling. The empirical results indicate that while there was no specific short-run pattern supporting the J-Curve phenomenon, the long-run results supported the economic theory, indicating that a real depreciation of the Rial has a favorable long-run effect on Yemen trade balance with five of her six trading partners (the GCC). To ascertain the stability of bilateral trade balance relationships, CUSUM and CUSUMQ tests were implemented and 1 out of 6 cases was found to be stable in terms of both tests.