UK trade balance with its trading partners: An asymmetry analysis

We use monthly data over the period 2000M1-2016M11 to assess response of U.K. trade balances with each of its 19 trading partners. When a linear ARDL model was estimated, we found short-run symmetric effects in the U.K. trade balance with 11 partners that lasted into the long-run symmetric effects in only five cases. However, when we shifted to a nonlinear ARDL model, we found short-run asymmetric effects with 14 partners which lasted into the long-run asymmetric effects in eight cases. The long-run effects were adverse in most cases which could be due to inelastic import demands. Future research must concentrate on disaggregating British trade data with each partner, especially with three largest partners (i.e., Germany, the U.S., and China) in order to identify industries that could benefit from pound depreciation.