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Exchange rate volatility and ASEAN-4’s trade flows: is there a third country effect?

Author

Listed:
  • Abdorreza Soleymani

    (Universiti Sains Malaysia)

  • Soo Y. Chua

    (Universiti Sains Malaysia)

  • Abdul Fatah Che Hamat

    (Universiti Sains Malaysia)

Abstract

This paper investigates the impact of exchange rate volatility on the trade flows among ASEAN-4 countries (Indonesia, Malaysia, Singapore and Thailand) as well as to their five main trading partners. External volatility is included in the models to study the ‘third country’ effect on the trade flows. We employ annual import and export data over the period of 1980–2012. The results from the bounds testing approach to cointegration and error-correction model reveal that the real exchange rate volatility does play a significant role in 15 export and four import models in short-run and long-run. Moreover, in both import and export models, the effects of exchange rate volatility on trade flows are negative rather than positive. Finally, the effects of volatility from the ASEAN-4’s currency/yuan rate dominate the third country effect on the ASEAN-4’s trade.

Suggested Citation

  • Abdorreza Soleymani & Soo Y. Chua & Abdul Fatah Che Hamat, 2017. "Exchange rate volatility and ASEAN-4’s trade flows: is there a third country effect?," International Economics and Economic Policy, Springer, vol. 14(1), pages 91-117, January.
    • Handle: RePEc:kap:iecepo:v:14:y:2017:i:1:d:10.1007_s10368-015-0328-9
    DOI: 10.1007/s10368-015-0328-9
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    More about this item

    Keywords

    ASEAN; Trade flows; Exchange rates volatility; Cointegration;
    All these keywords.

    JEL classification:

    • F31 - International Economics - - International Finance - - - Foreign Exchange
    • F14 - International Economics - - Trade - - - Empirical Studies of Trade
    • F32 - International Economics - - International Finance - - - Current Account Adjustment; Short-term Capital Movements

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