What is J curve ?
Definition of J curve
In economics, J curve is a theory which expresses that when country’s trade deficit increased, due to its currency depression. Because of high prices imports will be larger and become more costly than the low volume of country’s export. It is a portrayal of any esteem that at first falls before recovering and at last rising. Except for economics, this theory is applied in other fields of study like medicine and political science. J curve is most important when making any policy or investment. This allows the initial loss to get remarkable profit.
Brief Explanation of J curve
It is basically a kind of chart. Where the curve falls at the beginning and in the long run rises to a point higher than the beginning stage, demonstrating the letter J. in economics this is a condition when in start country’s trade balance is negative. Because of its currency devaluation and exchange rates get higher. It makes imports more costly and less important export. This results deficit increase and surplus decrease. Due to this situation, low price export attracts other countries trading partners. Local consumers also switch to less expensive country’s goods relative to the more expensive imports. This makes country’s export start to rising .country’s export volume gradually improve itself and reach to better levels compared to before devaluation. An inverse j curve may occur when country’s exports becoming more expensive than its import.
It predicts that a nation will, in the end, move to a trade surplus after its money decreases in worth. Subsequently, the nation will, in the end, observe positive net income from trade.