The J-Curve Dynamics of Iran Foreign Trade

The impact of devaluation of currency on trade balance can be studied in short and long run, which refers to J-curve effect and Marshall-Lerner Condition respectively. The purpose of this paper is to empirically study the effects of depreciation of I.R.Rial on the Iranian external trade balance, particularly, with the eleven world countries which constitute the over 65 percent of Iran’s foreign trade partrers, in two cases of short and long runs and for the years 1979-2006. This countries consist of: UAE, Germany, China, Italy, Switzerland, India, France, South Korea, Japan and UK and Turkey. In our study, we have used Eviews6 and to run VAR and IRF to estimate the envisage model. The empirical results suggest the existence of Marshal – Lerner condition for trade balance with the world as well as with UAE, Switzerland, India France, South Korea, Japan and UK. also the J- curve effect, at aggregate level and disaggregate levels, except in the case of Turkey, does exist.