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Exchange rate and trade balance linkage: sectoral evidence from Thailand based on nonlinear ARDL

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  • Suwanhirunkul, Suwijak
  • Masih, Mansur

Abstract

Exchange rate has been managed to improve trade balance in many countries to increase economic growth. However, the relationship between exchange rate and trade balance is inconclusive both in the long-run and short-run. Thus, to improve trade balance effectively, the relationship needs to be studied. Therefore, this paper will examine the relationship in Thailand by applying novel approach NARDL which would give more robust result than former techniques. The paper finds that relationship exists, and that depreciation improves trade balance for the whole country in the long-run but have mixed results for different sectors due to elasticity of demand for import and export. However, trade balance is worsened in the short-run according to J-curve theory. These results imply that there is a tradeoff of depreciation between short-run and long-run, and between exporting sectors and importing sectors. Policymaker could moderately depreciate the currency to boost trade balance but needs to effectively manage the cost incurred.

Suggested Citation

  • Suwanhirunkul, Suwijak & Masih, Mansur, 2018. "Exchange rate and trade balance linkage: sectoral evidence from Thailand based on nonlinear ARDL," MPRA Paper 87541, University Library of Munich, Germany.
    • Handle: RePEc:pra:mprapa:87541
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    References listed on IDEAS

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    Cited by:

    1. Elham Shubaita & Muhammad Mar’i & Mehdi Seraj, 2020. "Investigating in the J-curve phenomenon in Tunisia- ARDL bound test approach," Journal of Economics and Behavioral Studies, AMH International, vol. 12(5), pages 23-32.

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    More about this item

    Keywords

    exchange rate; trade balance; nonlinear ARDL; Thailand;
    All these keywords.

    JEL classification:

    • C22 - Mathematical and Quantitative Methods - - Single Equation Models; Single Variables - - - Time-Series Models; Dynamic Quantile Regressions; Dynamic Treatment Effect Models; Diffusion Processes
    • C58 - Mathematical and Quantitative Methods - - Econometric Modeling - - - Financial Econometrics
    • F1 - International Economics - - Trade
    • F31 - International Economics - - International Finance - - - Foreign Exchange

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