Testing the Marshall-Lerner Condition and the J-curve Effect on U.S. –China Trade

Abstract

We estimate a VECM regressing the ratio of U.S. export to U.S. import from china on U.S. real GDP,
China’s real GDP, and RREX (dollar-yuan real exchange rate). The real exchange rate variable is found to be negative but insignificant, failing to satisfy the Marshall-Lerner condition and implying that the dollar’s depreciation will have no effect on the U.S. trade balance with China in the long run. The variables