Table of Contents
Economics Research International
Volume 2014, Article ID 893170, 7 pages
http://dx.doi.org/10.1155/2014/893170
Review Article

The Effect of Exchange Rate Movements on Trade Balance: A Chronological Theoretical Review

Faculty of Economics and Muamalat, Universiti Sains Islam Malaysia (USIM), 71800 Nilai, Negeri Sembilan, Malaysia

Received 10 April 2014; Revised 2 August 2014; Accepted 3 August 2014; Published 24 August 2014

Academic Editor: Udo Broll

Copyright © 2014 Dhakir Abbas Ali et al. This is an open access article distributed under the Creative Commons Attribution License, which permits unrestricted use, distribution, and reproduction in any medium, provided the original work is properly cited.

Abstract

This paper evaluates the current state of the literature concerning the effects of exchange rate movements on trade balance. Thus, this paper is a review article and provides a survey of the alternative theories that focus on the effect of exchange rate changes on the trade balance. It systemizes the literature into four distinct reviews and approaches following the chronological order. The paper presents the (a) Standard Theory of International Trade, (b) Elasticity Approach, (c) Keynesian Absorption Approach, and (d) Monetary Approach. The study shows that higher attention should be given for the most plausible dynamic theory in this field, known as the J-Curve.