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International trade and exchange rates

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  • Jong Woo Kang
  • Suzette Dagli

Abstract

This paper analyzes the link between international trade and exchange rate levels in the context of the global financial crisis (GFC) and the rise of global and regional value chains (GVCs). Using bilateral data for 72 economies over the 2001–2015 period, we find a positive relationship between the real exchange rate and export volume pre-GFC; but this relationship mostly disappears post-GFC. We also examine the impact of deepening GVCs on trade and on the exchange rate-trade link channel. The analysis confirms that increased participation in GVCs lowers the impact of the exchange rate on exports, and could be a contributing factor to weakening links between exchange rates and trade. Lastly, other structural factors, such as import composition and stock of short-term external debt of exporters and importers, seem to have a significant impact on trade performance but less impact on the exchange rate-trade link channel post-GFC.

Suggested Citation

  • Jong Woo Kang & Suzette Dagli, 2018. "International trade and exchange rates," Journal of Applied Economics, Taylor & Francis Journals, vol. 21(1), pages 84-105, January.
    • Handle: RePEc:taf:recsxx:v:21:y:2018:i:1:p:84-105
    DOI: 10.1080/15140326.2018.1526878
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    References listed on IDEAS

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    1. World Bank, 2015. "World Development Indicators 2015," World Bank Publications - Books, The World Bank Group, number 21634.
    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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    2. Lucie Coufalová, 2020. "Sankce západních zemí a ruská odvetná opatření: dopad na české exporty [Sanctions by Western Countries and Russian Countermeasures: Impact on Czech Exports]," Politická ekonomie, Prague University of Economics and Business, vol. 2020(3), pages 348-366.
    3. Ahmad Ahmad, 2023. "Financial Development, Exchange Rate Stability and Trade in Nigeria," International Journal of Research and Innovation in Social Science, International Journal of Research and Innovation in Social Science (IJRISS), vol. 7(11), pages 1552-1557, November.
    4. Zongo, Amara, 2020. "The Impact of Services Trade Restrictiveness on Food Trade," MPRA Paper 101658, University Library of Munich, Germany.
    5. Ercan Yasar & Güray Akalin & Sinan Erdogan & Samuel Asumadu Sarkodie, 2022. "Trading Kuznets curve: empirical analysis for China," Empirica, Springer;Austrian Institute for Economic Research;Austrian Economic Association, vol. 49(3), pages 741-768, August.
    6. Nasrullah, Muhammad & Chang, Liu & Khan, Khalid & Rizwanullah, Muhammad & Zulfiqar, Farah & Ishfaq, Muhammad, 2020. "Determinants of forest product group trade by gravity model approach: A case study of China," Forest Policy and Economics, Elsevier, vol. 113(C).
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    8. Thomas Goda & Alejandro Torres García & Cristhian David Larrahondo Dominguez, 2021. "Sectoral real exchange rates and manufacturing exports: A case study of Latin America," Documentos de Trabajo de Valor Público 19286, Universidad EAFIT.
    9. Adedotun Joseph Adenigbo & Joash Mageto & Rose Luke, 2023. "Effect of shipping trade on economic growth in Nigeria: the Vector Error Correction Model (VECM) approach," Journal of Shipping and Trade, Springer, vol. 8(1), pages 1-18, December.
    10. Muhamet J. Spahiu & John McArdle & Betim J. Spahiu & Esat Durguti, 2024. "Effects of Broadband and Telephone Subscription on Exports in New Global Era: Evidence from Southeast European Countries," Central European Business Review, Prague University of Economics and Business, vol. 2024(3), pages 31-47.
    11. Peter Nuhu & Dramani Bukari, 2021. "An analysis of export, import and exchange rate oscillation in Ghana," International Journal of Economic Policy Studies, Springer, vol. 15(2), pages 301-327, September.
    12. Gor A. Khachatryan & Aleksandr Grigoryan, 2020. "Export Growth Dynamics and Real Exchange Rate: Evidence from Armenia," International Economic Journal, Taylor & Francis Journals, vol. 34(3), pages 493-509, July.
    13. Chortane, Sana Gaied & Pandey, Dharen Kumar, 2022. "Does the Russia-Ukraine war lead to currency asymmetries? A US dollar tale," The Journal of Economic Asymmetries, Elsevier, vol. 26(C).
    14. Busani Moyo, 2024. "Impact of SADC Free Trade Area on Southern Africa’s Intra-Trade Performance: Implications for the African Continental Free Trade Area," Foreign Trade Review, , vol. 59(1), pages 146-180, February.
    15. Akhil Sharma & Tarun Vashishat & Abdul Rishad, 2019. "The consequences of exchange rate trends on international tourism demand: evidence from India," Journal of Social and Economic Development, Springer;Institute for Social and Economic Change, vol. 21(2), pages 270-287, December.
    16. Tian, Qingsong & Yu, Yan & Xu, Yueyan & Li, Chongguang & Liu, Nianjie, 2023. "Patterns and driving factors of agricultural virtual water imports in China," Agricultural Water Management, Elsevier, vol. 281(C).

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    More about this item

    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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