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Investigating the Relationship between Trade Balance and the Exchange Rate: The Case of Laos’ Trade with Thailand

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  • Phouphet Kyophilavong
  • Muhammad Shahbaz
  • Ijaz Ur Rehman
  • Somchith Souksavath
  • Sengchanh Chanthasene

Abstract

We investigate the nexus between Laos’ trade balance and its real exchange rate with Thailand. We apply the combined cointegration approach and find that the trade balance and the real exchange rate have cointegration. The devaluation of Laos’ Kip improves the trade balance, but there is no evidence of the J-curve phenomenon. Laos’s economic growth causes its trade balance to deteriorate. A rise in Thai income increases the trade balance of Laos. This study presents new insights for policymakers who seek to sustain trade with Thailand by designing a comprehensive trade policy.

Suggested Citation

  • Phouphet Kyophilavong & Muhammad Shahbaz & Ijaz Ur Rehman & Somchith Souksavath & Sengchanh Chanthasene, 2018. "Investigating the Relationship between Trade Balance and the Exchange Rate: The Case of Laos’ Trade with Thailand," Global Business Review, International Management Institute, vol. 19(3), pages 590-603, June.
    • Handle: RePEc:sae:globus:v:19:y:2018:i:3:p:590-603
    DOI: 10.1177/0972150917713869
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