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Do currency manipulations hurt US bilateral trade balance?

Author

Listed:
  • Muhammad Aftab

    (COMSATS University)

  • Mohsen Bahmani-Oskooee

    (The University of Wisconsin-Milwaukee)

  • Huseyin Karamelikli

    (Karabuk University)

Abstract

Currency manipulations, the intentional intervention in the foreign exchange market by a country’s government or central bank, have been a contentious issue in international trade. However, empirical evidence on the matter is scarce. This study aims to fill this gap by investigating the effect of currency manipulations on the US bilateral trade balance with its major trading partners over a long-term period of 2000Q4 to 2020Q2. By using a novel currency manipulation index based on the US Treasury-defined variables and a combination of time series and panel cointegration approaches, this study uses a dataset of 21 major trading partners of the US. The analysis shows that currency manipulations have a statistically significant negative effect on the US bilateral trade balance with some country-level heterogeneity. The study provides new insights on the role of currency manipulations in international trade and implies that the findings have significant policy implications. By providing evidence of the detrimental effect of currency manipulations on trade balance, this study supports the argument for the need of international agreements and regulations to discourage such practices and promote fairness in global trade.

Suggested Citation

  • Muhammad Aftab & Mohsen Bahmani-Oskooee & Huseyin Karamelikli, 2023. "Do currency manipulations hurt US bilateral trade balance?," Eurasian Economic Review, Springer;Eurasia Business and Economics Society, vol. 13(1), pages 127-144, March.
    • Handle: RePEc:spr:eurase:v:13:y:2023:i:1:d:10.1007_s40822-023-00225-z
    DOI: 10.1007/s40822-023-00225-z
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    More about this item

    Keywords

    Currency manipulations; Currency devaluations; US bilateral trade; International trade;
    All these keywords.

    JEL classification:

    • F31 - International Economics - - International Finance - - - Foreign Exchange
    • O24 - Economic Development, Innovation, Technological Change, and Growth - - Development Planning and Policy - - - Trade Policy; Factor Movement; Foreign Exchange Policy
    • F13 - International Economics - - Trade - - - Trade Policy; International Trade Organizations
    • B17 - Schools of Economic Thought and Methodology - - History of Economic Thought through 1925 - - - International Trade and Finance

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