The real peso–dollar rate and US–Mexico industry trade: an asymmetric analysis

In an attempt to improve upon previous analyses and find further evidence for exchange rate theories such as the ‘J-curve', numerous studies have introduced novel econometric approaches that might help uncover significant results through disaggregation and nonlinearity. This study applies the nonlinear cointegration method of Shin et al. () to US–Mexican trade balances in 91 individual industries. While the linear model yields support for the ‘J-curve' effect in 16 industries, the nonlinear model raises this number to 29 which includes the two largest industries that engage in 35% of the trade between two countries. Furthermore, while the short-run asymmetric effects of exchange rate changes were discovered in almost all industries, short-run effects translated to significant long-run asymmetric effects in 52 industries.