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The Sensitivity of Export Quantities to Exchange Rates in the Context of Intra-Industry Trade

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  • Yoko Oguro

Abstract

This paper adds to the literature that suggests that exports become less sensitive to exchange rate movements under certain circumstances. Focusing on the industry-specific sensitivity of export quantities to exchange rates in the context of intra-industry trade (IIT), this paper theoretically and empirically investigates this relationship. The model presented shows that the extent of bilateral IIT is higher the lower the elasticity of substitution between differentiated products and/or the smaller the gap in production costs between two countries. The empirical analysis investigates cross-country industry-panels for the bilateral trade of eight East Asian countries, Japan, and the United States with the EU, Asia, Japan, and North America. The results confirm that the sensitivity of export quantities to exchange rates declines as the extent of IIT increases. The policy implication of the results is that exchange rate revaluations become a less powerful tool to redress trade imbalances when substantial IIT exists.

Suggested Citation

  • Yoko Oguro, 2011. "The Sensitivity of Export Quantities to Exchange Rates in the Context of Intra-Industry Trade," Global COE Hi-Stat Discussion Paper Series gd10-167, Institute of Economic Research, Hitotsubashi University.
    • Handle: RePEc:hst:ghsdps:gd10-167
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    File URL: http://gcoe.ier.hit-u.ac.jp/research/discussion/2008/pdf/gd10-167.pdf
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    References listed on IDEAS

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    Cited by:

    1. Rebecca Neumann & Saleh S. Tabrizy, 2021. "Exchange Rates and Trade Balances: Effects of Intra-Industry Trade and Vertical Specialization," Open Economies Review, Springer, vol. 32(3), pages 613-647, July.
    2. Megdam Khalil Ibrahim Khalil & Li Xiumin, 2014. "Identifying the Impact of RMB and SDG Exchange Rate Variability on the Trade Value between China and Sudan (1986-2012)," Journal of Empirical Economics, Research Academy of Social Sciences, vol. 2(3), pages 141-158.

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    More about this item

    Keywords

    trade; exchange rates; intra-industry trade; product differentiation;
    All these keywords.

    JEL classification:

    • F00 - International Economics - - General - - - General
    • F10 - International Economics - - Trade - - - General
    • F14 - International Economics - - Trade - - - Empirical Studies of Trade
    • F19 - International Economics - - Trade - - - Other

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