The pattern by which a country's trade balance first worsens after its currency depreciates and only later improves, so that a graph of the trade balance over time looks like the letter J.
- Logic: just after a depreciation, import prices rise immediately while export and import volumes adjust only slowly (contracts and orders are already fixed), so the trade balance worsens at first.
- Over time, cheaper exports sell more and dearer imports are bought less, so the balance improves and rises above its starting point.
- It assumes the "Marshall-Lerner condition" holds in the longer run, that trade volumes respond enough to price changes for the balance to improve.
- It explains why a weaker rupee does not instantly cut the trade deficit; see concept devaluation vs depreciation and concept trade balance.
- The short-run worsening is driven by price effects, the long-run improvement by volume effects.
The idea (depreciation worsens the trade balance before improving it, tracing a J shape) is a testable external-sector concept.
The J-curve says depreciation first worsens, then improves the trade balance; it does not mean depreciation immediately helps exports, because volumes adjust only with a lag.
After depreciation the trade balance first worsens then improves, tracing a J shape, due to price effects before volume effects.