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International Trade and Exchange Rate

Author

Listed:
  • Jong Woo Kang

    (Asian Development Bank)

Abstract

Tepid trade growth since the 2008/2009 global financial crisis (GFC) has been partly attributed to sluggish demand from developed countries. However, data reveals that developing countries play a bigger role in holding back trade growth, while developed countries show quite robust import growth. Post-GFC, the exchange rate volatility has grown significantly. As decomposition of country groups by changes in currency valuation shows, however, local currency depreciation is not contributing to export growth as much as conventional wisdom dictates. On the other hand, countries with appreciating currencies show rising import intensity and significant export growth. This implies that the more countries undergo currency devaluation—the deeper the degree of devaluation and even competitive devaluations—the more likely international trade will grow slower.

Suggested Citation

  • Jong Woo Kang, 2016. "International Trade and Exchange Rate," ADB Economics Working Paper Series 498, Asian Development Bank.
    • Handle: RePEc:ris:adbewp:0498
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    References listed on IDEAS

    as
    1. World Bank, 2015. "World Development Indicators 2015," World Bank Publications - Books, The World Bank Group, number 21634, October.
    2. Paulo Gala, 2008. "Real exchange rate levels and economic development: theoretical analysis and econometric evidence," Cambridge Journal of Economics, Cambridge Political Economy Society, vol. 32(2), pages 273-288, March.
    3. Andrew K. Rose, 2000. "One money, one market: the effect of common currencies on trade," Economic Policy, CEPR, CESifo, Sciences Po;CES;MSH, vol. 15(30), pages 08-45.
    4. Alessandro Nicita, 2013. "Exchange rates, international trade and trade policies," International Economics, CEPII research center, issue 135-136, pages 47-61.
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    Keywords

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    JEL classification:

    • C23 - Mathematical and Quantitative Methods - - Single Equation Models; Single Variables - - - Models with Panel Data; Spatio-temporal Models
    • F10 - International Economics - - Trade - - - General
    • F31 - International Economics - - International Finance - - - Foreign Exchange

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