Exchange rate effects on trade in services

Purpose - The purpose of this paper is to use disaggregated data on US-UK trade to investigate the effects of exchange rate depreciation on trade in services both in the short-and long-run. Design/methodology/approach - The paper focuses on the three traditional categories of internationally traded services - travel, passenger fares and other transportation services - and employs the "bounds" testing procedure advanced by Pesaran, Shin and Smith to investigate the J-curve effect. Findings - The results reveal that the real exchange rate has a statistically significant effect on trade in services in at least one of the time periods. The results also provide some support for the J-curve effect. Practical implications - Empirical evidence on the J-curve provides policymakers with valuable information about the effects of currency depreciation on the trade balance. Originality/value - To the best of the author's knowledge this is the first paper to investigate the J-curve effect using data on trade in services.