Dynamics of Foreign Trade in Brazilian States

Abstract

This study analyzes the impact of real exchange rate devaluations on the trade balance of Brazilian states by major economic categories (capital goods, intermediate goods, consumer goods, and fuels and lubricants), testing the J-Curve hypothesis and the Marshall-Lerner Condition. A panel autoregressive distributed lag (PARDL) model was applied to annual data from 26 Brazilian states (2000–2020), using Driscoll and Kraay's (1998) robust covariance correction to address cross-sectional and temporal dependence. This correction is robust to general forms of cross-sectional (spatial) or temporal dependence, typically present in data of this nature. The results suggest that real exchange rate devaluations have negative impacts on the trade balance across all sectors analyzed in the short term, followed by a positive and elastic long-term impact in most categories - except for fuels and lubricants, where there is evidence only of the initial phase of the J-curve phenomenon.