Do Imports and Exports Adjust Nonlinearly? Evidence from 100 Countries

A country is said to live within its international budget constraint if its exports and imports are cointegrated. Previous studies that tried to verify the cointegration between exports and imports used linear models and supported the theory in almost 50% of countries. In this paper, when we use the nonlinear ARDL approach and asymmetry cointegration method, we support the long-run link between imports and exports in 94 out of 100 countries in our sample. This study is not only the most comprehensive study in the literature, but it is also the first to show that, indeed, trade flows adjust in a nonlinear fashion.