Article

The effect of exchange rate volatility on international trade in East Asia

Journal of the Japanese and International Economies (Impact Factor: 0.4). 12/2009; 23(4):395-406. DOI: 10.1016/j.jjie.2009.07.001
Source: RePEc

ABSTRACT In this paper, we empirically investigate the relationship between exchange rate volatility and international trade, focusing on East Asia. Our findings are summarized as follows: first, intra-East Asian trade is discouraged by exchange rate volatility more seriously than trade in other regions. Second, one important source of the discouragement is that intermediate goods trade in international production networks, which is quite sensitive to exchange rate volatility compared with other types of trade, occupies a significant fraction of East Asian trade. Third, the negative effect of the volatility is greater than that of tariffs and smaller than that of distance-related costs in East Asia.

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    • "In general the effect of exchange rate volatility on trade is ambiguous. Within East Asian production networks, however, both theoretical and empirical evidence indicates that exchange rate volatility deters trade (see Thorbecke (2008) and Hayakawa and Kimura (2009)). This effect arises because the service link cost for production blocks separated by national borders is an increasing function of risk and uncertainty, and exchange rate volatility increases risk and uncertainty. "
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    • "The elasticity of the relationship between exchange rate and exports depends on the analyzed region. In Eastern Asia, international trade is discouraged by exchange rate volatility, which is stronger than in Europe (Kazunobu and Fukunari, 2009). "
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    ABSTRACT: This paper aims to establish particularities for the relationship between exchange rate volatility and the international trade in Romania. Currency depreciation, normally, should stimulate exports, because they become cheaper to foreign products and to discourage imports because they will spend more units of local currency to purchase goods in another state. By contrast, appreciation leads to some backfire: exports are hampered and imports increase. The theoretic area may be contradicted by practical cases. This analysis starts from well-known cases in this domain from around the world. Volatility of exchange rate on international trade is debated on Romania’s example using econometric methods. The volatility of exchange rate has a moderate influence in international trade, despite advantages obtained by the participants when the currency evolutes in the desired direction for them.
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