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The effects of exchange-rate volatility on commodity trade between the U.S. and Brazil

  • Bahmani-Oskooee, Mohsen
  • Harvey, Hanafiah
  • Hegerty, Scott W.

As Brazil continues its emergence as a major world economy, it has enjoyed both increased trade and capital inflow-fueled currency appreciations. But while it is often thought that exchange-rate volatility hurts trade, the economic literature has found that this is not always true. This study examines bilateral export and import flows between the United States and Brazil from 1971 to 2010, using cointegration analysis to estimate the effects of this risk. This study arrives at three main conclusions. First, while the majority of industries are not affected by volatility in the long run, an unexpectedly large share of those that are affected responds positively to increased risk. Second, sensitivity to risk differs markedly by industry sector: Brazilian exports of agricultural products are particularly harmed, while U.S. machinery imports are not impacted at all. Finally, products with small trade shares more likely to respond to increased uncertainty than are major exporters.

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Article provided by Elsevier in its journal The North American Journal of Economics and Finance.

Volume (Year): 25 (2013)
Issue (Month): C ()
Pages: 70-93

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Handle: RePEc:eee:ecofin:v:25:y:2013:i:c:p:70-93
Contact details of provider: Web page: http://www.elsevier.com/locate/inca/620163

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  1. Thursby, Jerry G & Thursby, Marie C, 1987. "Bilateral Trade Flows, the Linder Hypothesis, and Exchange Risk," The Review of Economics and Statistics, MIT Press, vol. 69(3), pages 488-95, August.
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  5. Mohsen Bahmani-Oskooee & Hanafiah Harvey & Scott Hegerty, 2013. "Exchange-rate variability and U.S.-French trade flows: evidence from industry data," Empirica, Springer, vol. 40(4), pages 685-719, November.
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  7. Asseery, A. & Peel, D. A., 1991. "The effects of exchange rate volatility on exports : Some new estimates," Economics Letters, Elsevier, vol. 37(2), pages 173-177, October.
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  12. Mohsen Bahmani-Oskooee & Marzieh Bolhassani & Scott Hegerty, 2012. "Exchange-rate volatility and industry trade between Canada and Mexico," The Journal of International Trade & Economic Development, Taylor & Francis Journals, vol. 21(3), pages 389-408, May.
  13. Mohsen Bahmani-Oskooee & Scott W. Hegerty, 2007. "Exchange rate volatility and trade flows: a review article," Journal of Economic Studies, Emerald Group Publishing, vol. 34(3), pages 211-255, September.
  14. Hochreiter, Eduard & Siklos, Pierre L., 2002. "Alternative exchange-rate regimes: The options for Latin America," The North American Journal of Economics and Finance, Elsevier, vol. 13(3), pages 195-211, December.
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  16. Mohsen Bahmani-Oskooee & Rajarshi Mitra, 2008. "Exchange Rate Risk and Commodity Trade Between the U.S. and India," Open Economies Review, Springer, vol. 19(1), pages 71-80, February.
  17. Nogueira Jr., Reginaldo P. & León-Ledesma, Miguel A., 2009. "Fear of Floating in Brazil: Did Inflation Targeting matter?," The North American Journal of Economics and Finance, Elsevier, vol. 20(3), pages 255-266, December.
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  20. Bahmani-Oskooee, Mohsen & Bolhassani, Marzieh & Hegerty, Scott W., 2011. "Industry trade between Canada and Mexico: Will a weakening peso help Mexican manufacturing in the long run?," The North American Journal of Economics and Finance, Elsevier, vol. 22(2), pages 89-101, August.
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