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

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  • Hayakawa, Kazunobu
  • Kimura, Fukunari

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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Bibliographic Info

Article provided by Elsevier in its journal Journal of the Japanese and International Economies.

Volume (Year): 23 (2009)
Issue (Month): 4 (December)
Pages: 395-406

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Handle: RePEc:eee:jjieco:v:23:y:2009:i:4:p:395-406

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Web page: http://www.elsevier.com/locate/inca/622903

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Keywords: Exchange rate volatility Trade East Asia;

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References

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  1. Kozo Kiyota & Shujiro Urata, 2004. "Exchange Rate, Exchange Rate Volatility and Foreign Direct Investment," The World Economy, Wiley Blackwell, Wiley Blackwell, vol. 27(10), pages 1501-1536, November.
  2. Ayako OBASHI, 2009. "Stability of Production Networks in East Asia: Duration and Survival of Trade," Working Papers, Economic Research Institute for ASEAN and East Asia (ERIA) d006, Economic Research Institute for ASEAN and East Asia (ERIA).
  3. THORBECKE, Willem, 2008. "The Effect of Exchange Rate Volatility on Fragmentation in East Asia: Evidence from the Electronics Industry," Discussion papers, Research Institute of Economy, Trade and Industry (RIETI) 08016, Research Institute of Economy, Trade and Industry (RIETI).
  4. McKenzie, Michael D, 1999. " The Impact of Exchange Rate Volatility on International Trade Flows," Journal of Economic Surveys, Wiley Blackwell, Wiley Blackwell, vol. 13(1), pages 71-106, February.
  5. Mitsuyo Ando & Fukinari Kimura, 2003. "The Formation of International Production and Distribution Networks in East Asia," NBER Working Papers 10167, National Bureau of Economic Research, Inc.
  6. Peter B. Clark & Shang-Jin Wei & Natalia T. Tamirisa & Azim M. Sadikov & Li Zeng, 2004. "A New Look at Exchange Rate Volatility and Trade Flows," IMF Occasional Papers, International Monetary Fund 235, International Monetary Fund.
  7. Chit, Myint Moe & Rizov, Marian & Willenbockel, Dirk, 2008. "Exchange Rate Volatility and Exports: New Empirical Evidence from the Emerging East Asian Economies," MPRA Paper 9014, University Library of Munich, Germany.
  8. Andrew K. Rose, 2000. "One money, one market: the effect of common currencies on trade," Economic Policy, CEPR;CES;MSH, CEPR;CES;MSH, vol. 15(30), pages 7-46, 04.
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Citations

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Cited by:
  1. Hayakawa, Kazunobu, 2011. "Bilateral tariff rates in international trade : finished goods versus intermediate goods," IDE Discussion Papers, Institute of Developing Economies, Japan External Trade Organization(JETRO) 304, Institute of Developing Economies, Japan External Trade Organization(JETRO).
  2. Pomfret, Richard & Pontines, Victor, 2013. "Exchange Rate Policy and Regional Trade Agreements: A Case of Conflicted Interests?," ADBI Working Papers, Asian Development Bank Institute 436, Asian Development Bank Institute.
  3. Fukunari Kimura & Ayako Obashi, 2011. "Production Networks in East Asia : What We Know So Far," Microeconomics Working Papers 23216, East Asian Bureau of Economic Research.
  4. Tang, Hsiao Chink, 2011. "Intra-Asia Exchange Rate Volatility and Intra-Asia Trade: Evidence by Type of Goods," Working Papers on Regional Economic Integration, Asian Development Bank 90, Asian Development Bank.
  5. Ghiba, Nicolae, 2010. "Implicații ale volatilității cursului de schimb asupra schimburilor comerciale internaționale (cazul Romaniei)
    [Implications of exchange rate volatility on international trade (The case of Roma
    ," MPRA Paper 28453, University Library of Munich, Germany, revised 27 Jan 2011.
  6. Veysel Avsar & Kemal Turkcan, 2013. "Exchange Rate Volatility and U.S. Auto-Industry Exports: A Panel Cointegration Approach," International Journal of Economics and Financial Issues, Econjournals, Econjournals, vol. 3(4), pages 772 - 787.
  7. ANDO Mitsuyo & KIMURA Fukunari, 2013. "Trade Adjustments to Exchange Rate Changes by Japanese Manufacturing MNEs: Intra-firm and arm's length transactions," Discussion papers, Research Institute of Economy, Trade and Industry (RIETI) 13023, Research Institute of Economy, Trade and Industry (RIETI).
  8. Lula G. Mengesha & Mark J. Holmes, 2013. "Does Dollarization Alleviate Or Aggravate Exchange Rate Volatility?," Journal of Economic Development, Chung-Ang Unviersity, Department of Economics, Chung-Ang Unviersity, Department of Economics, vol. 38(2), pages 99-118, June.
  9. Willem Thorbecke & Nimesh Salike, 2011. "Understanding Foreign Direct Investment in East Asia," Microeconomics Working Papers 23246, East Asian Bureau of Economic Research.
  10. Nobuaki Hamaguchi & Silvio Miyazaki & Leonardo Correia, 2014. "State Space Application to Recent Automobile Sector Triangle Trade between Japan and Latin America," Discussion Paper Series, Research Institute for Economics & Business Administration, Kobe University DP2014-05, Research Institute for Economics & Business Administration, Kobe University.
  11. THORBECKE, Willem & Hao-Kai PAI, 2013. "The Sophistication of East Asian Exports," Discussion papers, Research Institute of Economy, Trade and Industry (RIETI) 13092, Research Institute of Economy, Trade and Industry (RIETI).
  12. Nishimura, Yusaku & Hirayama, Kenjiro, 2013. "Does exchange rate volatility deter Japan-China trade? Evidence from pre- and post-exchange rate reform in China," Japan and the World Economy, Elsevier, Elsevier, vol. 25, pages 90-101.
  13. Fukunari Kimura, 2009. "The Nature and Characteristics of Production Networks in East Asia: Evidences from Micro/Panel Data Analyses," Global COE Hi-Stat Discussion Paper Series, Institute of Economic Research, Hitotsubashi University gd09-093, Institute of Economic Research, Hitotsubashi University.
  14. Hongjin Xiang & Zheng Zhan & Mingyong Lai, 2011. "The trade destruction effect and trade diversion effect of RMB appreciation," Frontiers of Economics in China, Springer, Springer, vol. 6(3), pages 479-493, September.
  15. Willem Thorbecke, 2010. "Investigating the Effect of Exchange Rate Changes on the People’s Republic of China’s Processed Exports," Finance Working Papers 21989, East Asian Bureau of Economic Research.
  16. Willem THORBECKE, 2010. "The Appropriate Policy Mix for China," Policy Discussion Papers, Research Institute of Economy, Trade and Industry (RIETI) 10002, Research Institute of Economy, Trade and Industry (RIETI).
  17. THORBECKE, Willem, 2014. "Rebalancing Trade within East Asian Supply Chains," Discussion papers, Research Institute of Economy, Trade and Industry (RIETI) 14002, Research Institute of Economy, Trade and Industry (RIETI).
  18. Carmen Sandu & Nicolae Ghiba, 2011. "The Relationship Between Exchange Rate And Exports In Romania Using A Vector Autoregressive Model," Annales Universitatis Apulensis Series Oeconomica, Faculty of Sciences, "1 Decembrie 1918" University, Alba Iulia, Faculty of Sciences, "1 Decembrie 1918" University, Alba Iulia, vol. 2(13), pages 29.
  19. Abdul Jalil Khan & Parvez Azim & Shabib Haider Syed, 2014. "The Impact of Exchange Rate Volatility on Trade: A Panel Study on Pakistan’s Trading Partners," Lahore Journal of Economics, Department of Economics, The Lahore School of Economics, Department of Economics, The Lahore School of Economics, vol. 19(1), pages 31-66, Jan-June.
  20. Halmi Mirela, 2012. "The Correlation Between The Exchange Rate And The Direct Foreign Investments," Annals of Faculty of Economics, University of Oradea, Faculty of Economics, University of Oradea, Faculty of Economics, vol. 1(1), pages 809-815, July.

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