J-curve

The J-curve is an economic concept that describes how a country’s trade balance may initially worsen after a currency devaluation or depreciation, before eventually improving. The curve is named after its shape, which resembles the letter “J”—showing an initial dip followed by a rise. This effect is commonly seen in international trade, especially when a country’s currency loses value.

When a currency weakens, imports become more expensive while exports become cheaper for foreign buyers. However, in the short term, the quantity of trade often doesn’t change immediately due to existing contracts and habits. As a result, the cost of imports may rise faster than export earnings, causing the trade balance to deteriorate. Over time, though, export volumes usually increase due to their lower prices, and imports may decrease as they become costlier—leading to an improvement in the trade balance. This delayed reaction is what creates the J-shaped pattern.

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