IDEAS home Printed from https://ideas.repec.org/a/sae/sagope/v12y2022i2p21582440221091715.html
   My bibliography  Save this article

The Roles of Vehicle Currency and Real Effective Exchange Rates in the Trade of Every ASEAN Member With the EU-28

Author

Listed:
  • Ho Hoang Gia Bao
  • Hoang Phong Le

Abstract

A common limitation of the studies on the exchange rate-trade balance linkage is ignoring the USD’s role as a vehicle currency. Some recent papers have recognized this gap and proposed a hypothesis that the neglection of the USD’s role as a vehicle currency can restrict the significance of findings. This study aims to test that hypothesis in the trade between each of the 10 countries in ASEAN (Association of Southeast Asian Nations) with the whole EU-28. Specifically, this paper is the first to examine how the vehicle currency USD’s exchange rates, along with the real effect exchange rates, asymmetrically impact the trade balance of each ASEAN country with the EU-28 by employing the NARDL method to investigate whether the ignorance of the USD leads to fewer significant coefficients of exchange rates. The results indicate that the vehicle currency model (VCER) outperforms the real effective exchange rate (REER) model, which supports the hypothesis. In addition, the results are robust when controlling for the role of exchange rate volatility.

Suggested Citation

  • Ho Hoang Gia Bao & Hoang Phong Le, 2022. "The Roles of Vehicle Currency and Real Effective Exchange Rates in the Trade of Every ASEAN Member With the EU-28," SAGE Open, , vol. 12(2), pages 21582440221, April.
    • Handle: RePEc:sae:sagope:v:12:y:2022:i:2:p:21582440221091715
    DOI: 10.1177/21582440221091715
    as

    Download full text from publisher

    File URL: https://journals.sagepub.com/doi/10.1177/21582440221091715
    Download Restriction: no
    File URL: https://libkey.io/10.1177/21582440221091715?utm_source=ideas
    LibKey link: if access is restricted and if your library uses this service, LibKey will redirect you to where you can use your library subscription to access this item
    ---><---

    References listed on IDEAS

    as
    1. Rose, Andrew K. & Yellen, Janet L., 1989. "Is there a J-curve?," Journal of Monetary Economics, Elsevier, vol. 24(1), pages 53-68, July.
    2. Tarlok Singh, 2004. "Testing J-curve hypothesis and analysing the effect of exchange rate volatility on the balance of trade in India," Empirical Economics, Springer, vol. 29(2), pages 227-245, May.
    3. Krugman, Paul, 1980. "Vehicle Currencies and the Structure of International Exchange," Journal of Money, Credit and Banking, Blackwell Publishing, vol. 12(3), pages 513-526, August.
    4. Salah A. Nusair, 2017. "The J-Curve phenomenon in European transition economies: A nonlinear ARDL approach," International Review of Applied Economics, Taylor & Francis Journals, vol. 31(1), pages 1-27, January.
    5. Yang, Guangpu & Gu, Qingyang, 2016. "Effects of exchange rate variations on bilateral trade with a vehicle currency: Evidence from China and Singapore," Journal of International Money and Finance, Elsevier, vol. 68(C), pages 50-73.
    6. Peter Wilson, 2001. "Exchange Rates and the Trade Balance for Dynamic Asian Economies—Does the J-Curve Exist for Singapore, Malaysia, and Korea?," Open Economies Review, Springer, vol. 12(4), pages 389-413, October.
    7. Magee, Stephen P & Rao, Ramesh K S, 1980. "Vehicle and Nonvehicle Currencies in International Trade," American Economic Review, American Economic Association, vol. 70(2), pages 368-373, May.
    8. Bernard Njindan Iyke & Sin-Yu Ho, 2018. "Nonlinear effects of exchange rate changes on the South African bilateral trade balance," The Journal of International Trade & Economic Development, Taylor & Francis Journals, vol. 27(3), pages 350-363, April.
    9. Yannick Bineau, 2016. "Real exchange rate and bilateral trade balance of Cambodia: A panel investigation," Economics Bulletin, AccessEcon, vol. 36(2), pages 895-900.
    10. Kyophilavong, Phouphet & Shahbaz, Muhammad & Uddin, Gazi Salah, 2013. "Does J-curve phenomenon exist in case of Laos? An ARDL approach," Economic Modelling, Elsevier, vol. 35(C), pages 833-839.
    11. Goldberg, Linda S. & Tille, Cédric, 2008. "Vehicle currency use in international trade," Journal of International Economics, Elsevier, vol. 76(2), pages 177-192, December.
    12. Yannick Bineau, 2016. "Real exchange rate and bilateral trade balance of Cambodia : a panel investigation," Post-Print hal-01772680, HAL.
    13. Hayakawa, Kazunobu & Kimura, Fukunari, 2009. "The effect of exchange rate volatility on international trade in East Asia," Journal of the Japanese and International Economies, Elsevier, vol. 23(4), pages 395-406, December.
    14. Rose, Andrew K., 1991. "The role of exchange rates in a popular model of international trade : Does the 'Marshall-Lerner' condition hold?," Journal of International Economics, Elsevier, vol. 30(3-4), pages 301-316, May.
    15. Mohsen Bahmani-Oskooee & Jungho Baek, 2019. "Asymmetry cointegration and the J-curve: new evidence from Korean bilateral trade balance models with her 14 partners," Journal of the Asia Pacific Economy, Taylor & Francis Journals, vol. 24(1), pages 66-81, January.
    16. Hanafiah Harvey, 2018. "Bilateral J-Curve between Philippines and Trading Partners: Linear and Non-Linear Approach," Asian Economic and Financial Review, Asian Economic and Social Society, vol. 8(2), pages 131-144, February.
    17. Sharma, Chandan & Pal, Debdatta, 2018. "Exchange rate volatility and India's cross-border trade: A pooled mean group and nonlinear cointegration approach," Economic Modelling, Elsevier, vol. 74(C), pages 230-246.
    18. Mohsen Bahmani‐Oskooee & Gour G. Goswami & Bidyut Kumar Talukdar, 2005. "The Bilateral J‐Curve: Australia Versus Her 23 Trading Partners," Australian Economic Papers, Wiley Blackwell, vol. 44(2), pages 110-120, June.
    19. Mohsen Bahmani-Oskooee & Muhammad Aftab, 2017. "Asymmetric effects of exchange rate changes on the Malaysia-EU trade: evidence from industry data," Empirica, Springer;Austrian Institute for Economic Research;Austrian Economic Association, vol. 44(2), pages 339-365, May.
    20. Medhora, Rohinton, 1990. "The effect of exchange rate variability on trade: The case of the West African Monetary Union's imports," World Development, Elsevier, vol. 18(2), pages 313-324, February.
    21. Mohsen Bahmani-Oskooee & Hadise Fariditavana, 2016. "Nonlinear ARDL Approach and the J-Curve Phenomenon," Open Economies Review, Springer, vol. 27(1), pages 51-70, February.
    22. Paresh Kumar Narayan, 2005. "The saving and investment nexus for China: evidence from cointegration tests," Applied Economics, Taylor & Francis Journals, vol. 37(17), pages 1979-1990.
    23. Mohsen Bahmani-Oskooee & Ferda Halicioglu & Sahar Bahmani, 2017. "Do exchange rate changes have symmetric or asymmetric effects on the demand for money in Turkey?," Applied Economics, Taylor & Francis Journals, vol. 49(42), pages 4261-4270, September.
    24. Mohsen Bahmani-Oskooee & Tatchawan Kanitpong, 2017. "Do exchange rate changes have symmetric or asymmetric effects on the trade balances of Asian countries?," Applied Economics, Taylor & Francis Journals, vol. 49(46), pages 4668-4678, October.
    25. Wilson, Peter & Tat, Kua Choon, 2001. "Exchange rates and the trade balance: the case of Singapore 1970 to 19961," Journal of Asian Economics, Elsevier, vol. 12(1), pages 47-63.
    26. Bahmani-Oskooee, Mohsen & Halicioglu, Ferda & Hegerty, Scott W., 2016. "Mexican bilateral trade and the J-curve: An application of the nonlinear ARDL model," Economic Analysis and Policy, Elsevier, vol. 50(C), pages 23-40.
    27. Mohsen Bahmani-Oskooee & Hanafiah Harvey, 2010. "The J-curve: Malaysia versus her major trading partners," Applied Economics, Taylor & Francis Journals, vol. 42(9), pages 1067-1076.
    28. Mohsen Bahmani-Oskooee & Artatrana Ratha, 2004. "The J-Curve: a literature review," Applied Economics, Taylor & Francis Journals, vol. 36(13), pages 1377-1398.
    29. Bahmani-Oskooee, Mohsen & Aftab, Muhammad, 2018. "Asymmetric effects of exchange rate changes on the Malaysia-China commodity trade," Economic Systems, Elsevier, vol. 42(3), pages 470-486.
    30. Mohsen Bahmani‐Oskooee & Scott W. Hegerty, 2010. "The J‐ and S‐curves: a survey of the recent literature," Journal of Economic Studies, Emerald Group Publishing Limited, vol. 37(6), pages 580-596, November.
    31. Abdorreza Soleymani & Soo Y. Chua, 2014. "How responsive are trade flows between Malaysia and China to the exchange rate? Evidence from industry data," International Review of Applied Economics, Taylor & Francis Journals, vol. 28(2), pages 191-209, March.
    32. Paresh Kumar Narayan, 2006. "Examining the relationship between trade balance and exchange rate: the case of China's trade with the USA," Applied Economics Letters, Taylor & Francis Journals, vol. 13(8), pages 507-510.
    33. M. Hashem Pesaran & Yongcheol Shin & Richard J. Smith, 2001. "Bounds testing approaches to the analysis of level relationships," Journal of Applied Econometrics, John Wiley & Sons, Ltd., vol. 16(3), pages 289-326.
    34. Mohsen Bahmani-Oskooee & Hadise Fariditavana, 2015. "Nonlinear ARDL approach, asymmetric effects and the J-curve," Journal of Economic Studies, Emerald Group Publishing Limited, vol. 42(3), pages 519-530, August.
    35. Hanafiah Harvey, 2018. "Bilateral J-Curve between Philippines and Trading Partners: Linear and Non-Linear Approach," Asian Economic and Financial Review, Asian Economic and Social Society, vol. 8(2), pages 131-144.
    36. Bahmani-Oskooee, Mohsen, 1985. "Devaluation and the J-Curve: Some Evidence from LDCs," The Review of Economics and Statistics, MIT Press, vol. 67(3), pages 500-504, August.
    37. Mohsen Bahmani-Oskooee & Ferda Halicioglu & Amirhossein Mohammadian, 2018. "On the asymmetric effects of exchange rate changes on domestic production in Turkey," Economic Change and Restructuring, Springer, vol. 51(2), pages 97-112, May.
    38. Liu, Tao & Lu, Dong, 2019. "Trade, finance and endogenous invoicing currency: Theory and firm-level evidence," Pacific-Basin Finance Journal, Elsevier, vol. 56(C), pages 21-44.
    39. Michael D. McKenzie, 1999. "The Impact of Exchange Rate Volatility on International Trade Flows," Journal of Economic Surveys, Wiley Blackwell, vol. 13(1), pages 71-106, February.
    40. Mohsen Bahmani-Oskooee & Amirhossein Mohammadian, 2018. "Asymmetry Effects of Exchange Rate Changes on Domestic Production in Emerging Countries," Emerging Markets Finance and Trade, Taylor & Francis Journals, vol. 54(6), pages 1442-1459, May.
    41. Phouphet Kyophilavong & Muhammad Shahbaz & Ijaz Ur Rehman & Somchith Souksavath & Sengchanh Chanthasene, 2018. "Investigating the Relationship between Trade Balance and the Exchange Rate: The Case of Laos’ Trade with Thailand," Global Business Review, International Management Institute, vol. 19(3), pages 590-603, June.
    42. Stephen P. Magee, 1973. "Currency Contracts, Pass-Through, and Devaluation," Brookings Papers on Economic Activity, Economic Studies Program, The Brookings Institution, vol. 4(1), pages 303-325.
    43. Mohsen Bahmani-Oskooee & Tatchawan Kanitpong, 2019. "Asymmetric Effects of Exchange Rate Changes on Thailand-China Commodity Trade: Evidence From 45 Industries," Chinese Economy, Taylor & Francis Journals, vol. 52(3), pages 203-231, May.
    44. Mohsen Bahmani-Oskooee & Jungho Baek, 2017. "Do Exchange Rate Changes Have Symmetric or Asymmetric Effects on the Demand for Money in Korea? ," Review of Economic Analysis, Digital Initiatives at the University of Waterloo Library, vol. 9(2), pages 155-168, December.
    45. Fabio Augusto Reis Gomes & Lourenco Senne Paz, 2005. "Can real exchange rate devaluation improve the trade balance? The 1990-1998 Brazilian case," Applied Economics Letters, Taylor & Francis Journals, vol. 12(9), pages 525-528.
    46. Arize, Augustine C. & Malindretos, John & Igwe, Emmanuel U., 2017. "Do exchange rate changes improve the trade balance: An asymmetric nonlinear cointegration approach," International Review of Economics & Finance, Elsevier, vol. 49(C), pages 313-326.
    47. Odhiambo, Nicholas M., 2009. "Energy consumption and economic growth nexus in Tanzania: An ARDL bounds testing approach," Energy Policy, Elsevier, vol. 37(2), pages 617-622, February.
    48. Mohsen Bahmani-Oskooee & Muhammad Aftab, 2017. "Asymmetric Effects of Exchange Rate Changes and the J-curve: New Evidence from 61 Malaysia–Thailand Industries," Review of Development Economics, Wiley Blackwell, vol. 21(4), pages 30-46, November.
    49. Bailey, Martin J. & Tavlas, George S. & Ulan, Michael, 1987. "The impact of exchange-rate volatility on export growth: Some theoretical considerations and empirical results," Journal of Policy Modeling, Elsevier, vol. 9(1), pages 225-243.
    50. M. Ege Yazgan & Serda Selin Ozturk, 2019. "Real Exchange Rates and the Balance of Trade: Does the J-curve Effect Really Hold?," Open Economies Review, Springer, vol. 30(2), pages 343-373, April.
    51. Mohsen Bahmani-Oskooee & Hanafiah Harvey, 2019. "The J-curve and bilateral trade balances of Indonesia with its major partners: are there asymmetric effects?," New Zealand Economic Papers, Taylor & Francis Journals, vol. 53(1), pages 63-76, January.
    Full references (including those not matched with items on IDEAS)

    Citations

    Citations are extracted by the CitEc Project, subscribe to its RSS feed for this item.
    as


    Cited by:

    1. Sherina Rafidah Khairunnisa & Siskarossa Ika Oktora, 2023. "Could Renewable Energy Use Boost Goods Export Performance in ASEAN?," Economics and Finance in Indonesia, Faculty of Economics and Business, University of Indonesia, vol. 69, pages 146-162, December.

    Most related items

    These are the items that most often cite the same works as this one and are cited by the same works as this one.
    1. Bao, Ho Hoang Gia & Le, Hoang Phong, 2021. "ASEAN's trade balance with the whole EU-28 at industry level: The role of vehicle currency," The Journal of Economic Asymmetries, Elsevier, vol. 24(C).
    2. Hamad, Mudhafar Ahmed & Falsafian, Azadeh, 2024. "Modeling Asymmetric Effects of Exchange Rate Fluctuations on Agricultural Trade Balance: Evidence from Iran and Iraq," AGRIS on-line Papers in Economics and Informatics, Czech University of Life Sciences Prague, Faculty of Economics and Management, vol. 16(2), June.
    3. Mohsen Bahmani-Oskooee & Ridha Nouira, 2021. "U.S. – Italy commodity trade and the J-curve: new evidence from asymmetry analysis," International Economics and Economic Policy, Springer, vol. 18(1), pages 73-103, February.
    4. Bahmani-Oskooee Mohsen & Harvey Hanafiah, 2017. "The Asymmetric Effects of Exchange Rate Changes on the Trade Balance of Singapore," Global Economy Journal, De Gruyter, vol. 17(4), pages 1-11, December.
    5. Bahmani-Oskooee, Mohsen & Nouira, Ridha, 2021. "U.S.-German commodity trade and the J-curve: New evidence from asymmetry analysis," Economic Systems, Elsevier, vol. 45(2).
    6. Mohsen Bahmani-Oskooee & Huseyin Karamelikli, 2021. "The Turkey-US commodity trade and the asymmetric J-curve," Economic Change and Restructuring, Springer, vol. 54(4), pages 943-973, November.
    7. Mohammad Naim Azimi & Mohammad Musa Shafiq, 2022. "The J-curve phenomenon in Afghanistan and its major trading partners: evidence from a non-linear ARDL approach," SN Business & Economics, Springer, vol. 2(7), pages 1-28, July.
    8. Mohsen Bahmani-Oskooee & Tatchawan Kanitpong, 2019. "Asymmetric Effects of Exchange Rate Changes on Thailand-China Commodity Trade: Evidence From 45 Industries," Chinese Economy, Taylor & Francis Journals, vol. 52(3), pages 203-231, May.
    9. Mohsen Bahmani-Oskooee & Ahmed Usman & Sana Ullah, 2020. "Asymmetric J-curve in the commodity trade between Pakistan and United States: evidence from 41 industries," Eurasian Economic Review, Springer;Eurasia Business and Economics Society, vol. 10(2), pages 163-188, June.
    10. Mohsen Bahmani-Oskooee & Amirhossein Mohammadian, 2019. "Who benefits from euro depreciation in the euro zone?," Empirica, Springer;Austrian Institute for Economic Research;Austrian Economic Association, vol. 46(3), pages 577-595, August.
    11. Mohsen Bahmani-Oskooee & Muhammad Ali Nasir, 2020. "Asymmetric J-curve: evidence from industry trade between U.S. and U.K," Applied Economics, Taylor & Francis Journals, vol. 52(25), pages 2679-2693, May.
    12. Alper YILMAZ, 2024. "Bilateral J-Curve Between Türkiye and Its Major Non-EU Trading Partners: Evidence from Both Linear and Non-Linear Approach," Sosyoekonomi Journal, Sosyoekonomi Society, issue 32(60).
    13. Salah A. Nusair, 2017. "The J-Curve phenomenon in European transition economies: A nonlinear ARDL approach," International Review of Applied Economics, Taylor & Francis Journals, vol. 31(1), pages 1-27, January.
    14. M. Ege Yazgan & Serda Selin Ozturk, 2019. "Real Exchange Rates and the Balance of Trade: Does the J-curve Effect Really Hold?," Open Economies Review, Springer, vol. 30(2), pages 343-373, April.
    15. Mohsen Bahmani-Oskooee & Jungho Baek, 2019. "Asymmetry cointegration and the J-curve: new evidence from Korean bilateral trade balance models with her 14 partners," Journal of the Asia Pacific Economy, Taylor & Francis Journals, vol. 24(1), pages 66-81, January.
    16. Kyophilavong, Phouphet & Shahbaz, Muhammad & Uddin, Gazi Salah, 2013. "Does J-curve phenomenon exist in case of Laos? An ARDL approach," Economic Modelling, Elsevier, vol. 35(C), pages 833-839.
    17. Mohsen Bahmani‐Oskooee & Hanafiah Harvey & Scott W. Hegerty, 2018. "The real peso–dollar rate and US–Mexico industry trade: an asymmetric analysis," Scottish Journal of Political Economy, Scottish Economic Society, vol. 65(4), pages 350-389, September.
    18. Bahmani-Oskooee, Mohsen & Hadj Amor, Thouraya & Maki Nayeri, Majid & Niroomand, Farhang, 2019. "On the link between real effective value of Tunisia’s Dinar and its sectoral trade with the rest of the world: New evidence from asymmetry analysis," The Quarterly Review of Economics and Finance, Elsevier, vol. 73(C), pages 111-118.
    19. Sajad Ahmad Bhat & Javed Ahmad Bhat, 2021. "Impact of Exchange Rate Changes on the Trade Balance of India: An Asymmetric Nonlinear Cointegration Approach," Foreign Trade Review, , vol. 56(1), pages 71-88, February.
    20. Mohsen Bahmani-Oskooee & Hanafiah Harvey & Amr Hosny, 2019. "Kazakhstan trade with its partners and the role of tenge: an asymmetric analysis," Eurasian Economic Review, Springer;Eurasia Business and Economics Society, vol. 9(4), pages 493-513, December.

    Corrections

    All material on this site has been provided by the respective publishers and authors. You can help correct errors and omissions. When requesting a correction, please mention this item's handle: RePEc:sae:sagope:v:12:y:2022:i:2:p:21582440221091715. See general information about how to correct material in RePEc.

    If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.

    If CitEc recognized a bibliographic reference but did not link an item in RePEc to it, you can help with this form .

    If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your RePEc Author Service profile, as there may be some citations waiting for confirmation.

    For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: SAGE Publications (email available below). General contact details of provider: .

    Please note that corrections may take a couple of weeks to filter through the various RePEc services.

    IDEAS is a RePEc service. RePEc uses bibliographic data supplied by the respective publishers.