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India's J-Curve and Trade Deficit | PDF | International Business | World Economy
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India's J-Curve and Trade Deficit

The document discusses the "J curve" theory, which states that a country's trade deficit will initially worsen after its currency depreciates because higher import prices will outweigh reduced import volumes. However, over time the relative price changes will boost exports and reduce imports, eventually improving the balance of payments. This process could be relevant for India given the recent depreciation of the rupee, as costlier imports may decrease demand while exports become more competitive.

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Anoop Patsariya
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134 views2 pages

India's J-Curve and Trade Deficit

The document discusses the "J curve" theory, which states that a country's trade deficit will initially worsen after its currency depreciates because higher import prices will outweigh reduced import volumes. However, over time the relative price changes will boost exports and reduce imports, eventually improving the balance of payments. This process could be relevant for India given the recent depreciation of the rupee, as costlier imports may decrease demand while exports become more competitive.

Uploaded by

Anoop Patsariya
Copyright
© Attribution Non-Commercial (BY-NC)
We take content rights seriously. If you suspect this is your content, claim it here.
Available Formats
Download as PPTX, PDF, TXT or read online on Scribd
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Why current a/c deficit will improve ?

J curve- A theory stating that a country's trade deficit will worsen initially after the depreciation of its currency because higher prices on foreign imports will be greater than the reduced volume of imports. The effects of the change in the price of exports compared to imports will eventually induce an expansion of exports and a cut in imports--which, in turn, will improve the balance of payments.

Is it relevent to indian context ?


Depreciation of rupee from 49rs a dollar to 57rs and again back to 55rs. But over a period of time imports become costlier and demand for this products dampens. On the other side of the trade exports starts increasing and as a result jcurve process will come into effect.

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