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An investigation on the effect of real exchange rate movements on OECD bilateral exports

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  • Berthou, Antoine

Abstract

The reaction of exports to real exchange rate movements can differ according to the nature of the destination country. We derive and estimate a gravity equation for 20 OECD exporting countries and 52 developed and developing importing countries. We test how trade costs dampen the effect of real exchange rate movements on bilateral exports, and show that the elasticity on the real exchange rate is reduced when (i) the destination country has a low quality of institutions, (ii) this country is more distant, and (iii) the efficiency of customs is low in both the importing and exporting countries. These results are highly consistent with the existence of an hysteresis effect of real exchange rate movements on trade, as suggested by Baldwin and Krugman (1989). JEL Classification: F10, F32, D73

Suggested Citation

  • Berthou, Antoine, 2008. "An investigation on the effect of real exchange rate movements on OECD bilateral exports," Working Paper Series 920, European Central Bank.
    • Handle: RePEc:ecb:ecbwps:2008920
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    3. Agnès Bénassy‐Quéré & Matthieu Bussière & Pauline Wibaux, 2021. "Trade and currency weapons," Review of International Economics, Wiley Blackwell, vol. 29(3), pages 487-510, August.
    4. Moon Jung Choi & Geun-Young Kim & Joo Yong Lee, 2015. "An Analysis of Trade Patterns in East Asia and the Effects of the Real Exchange Rate Movements," Working Papers 2015-29, Economic Research Institute, Bank of Korea.
    5. Richard Fabling & Lynda Sanderson, 2015. "Exchange rate fluctuations and the margins of exports," Working Papers 15_05, Motu Economic and Public Policy Research.
    6. repec:ecb:ecbwps:20141801 is not listed on IDEAS
    7. Diego Bastourre & Luis Casanova & Alejo Espora, 2011. "Tipo de Cambio Real y Crecimiento: Síntesis de la Evidencia y Agenda de Investigación," IIE, Working Papers 082, IIE, Universidad Nacional de La Plata.
    8. Anthony Orji & Jonathan E. Ogbuabor & Chiamaka Okeke & Onyinye I. Anthony Orji, 2020. "Exchange rate movements and the export sector: new empirical evidence from Nigeria," Economic Thought journal, Bulgarian Academy of Sciences - Economic Research Institute, issue 1, pages 80-93,94-10.
    9. Diego Bastourre & Luis Casanova & Alejo Espora, 2011. "Tipo de Cambio Real y Crecimiento: Síntesis de la Evidencia y Agenda de Investigación," Department of Economics, Working Papers 082, Departamento de Economía, Facultad de Ciencias Económicas, Universidad Nacional de La Plata.
    10. Prilepskiy, Ilya (Прилепский, Илья), 2017. "Factors of Exports Dynamics and Import Substitution after the Sharp Exchange Rate Depreciation [Факторы Динамики Экспорта И Импортозамещения После Резкого Ослабления Курса Национальной Валюты]," Ekonomicheskaya Politika / Economic Policy, Russian Presidential Academy of National Economy and Public Administration, vol. 3, pages 100-133, June.
    11. A. Berthou & E. Dhyne, 2018. "Exchange Rate Movements, Firm-Level Exports and Heterogeneity," Working papers 660, Banque de France.
    12. Mario Cimoli & Sebastian Fleitas & Gabriel Porcile, 2013. "Technological intensity of the export structure and the real exchange rate," Economics of Innovation and New Technology, Taylor & Francis Journals, vol. 22(4), pages 353-372, June.
    13. Andrea Fracasso & Stefano Schiavo, 2009. "Trade-imbalances networks and exchange rate adjustments: the paradox of a new Plaza. The XIVth Spring Meeting of Young Economists (SMYE-2009), Istanbul, April 2009," Post-Print hal-01053278, HAL.
    14. repec:hal:spmain:info:hdl:2441/10028 is not listed on IDEAS
    15. Demian, Calin-Vlad & di Mauro, Filippo, 2018. "The exchange rate, asymmetric shocks and asymmetric distributions," International Economics, Elsevier, vol. 154(C), pages 68-85.
    16. M. Hakan Berument & Zulal S. Denaux & Yeliz Yalcin, 2015. "The Inconsistent Response Of Turkish Export Demand To Real Exchange Rate Shocks," Global Journal of Business Research, The Institute for Business and Finance Research, vol. 9(1), pages 49-56.
    17. Enzo Cassino & David Oxley, 2013. "How Does the Exchange Rate Affect the Real Economy? A Literature Survey," Treasury Working Paper Series 13/26, New Zealand Treasury.
    18. repec:spo:wpecon:info:hdl:2441/10028 is not listed on IDEAS
    19. Ayele, Getaneh Mihret, 2021. "The Effect of Everything But Arms Trade Preference on the Exports of Ethiopia: Empirical Evidence Using Gravity Model," Ethiopian Journal of Economics, Ethiopian Economics Association, vol. 30(02), October.
    20. Sagnik Bagchi & Surajit Bhattacharyya, 2019. "Country-Specific Determinants of Intra-Industry Trade in India," Foreign Trade Review, , vol. 54(3), pages 129-158, August.
    21. Cimoli, Mario & Fleitas, Sebastian & Porcile, Gabriel, 2011. "Real Exchange Rate and the Structure of Exports," MPRA Paper 37846, University Library of Munich, Germany.

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    More about this item

    Keywords

    Exchange Rate Movements; institutions; trade;
    All these keywords.

    JEL classification:

    • F10 - International Economics - - Trade - - - General
    • F32 - International Economics - - International Finance - - - Current Account Adjustment; Short-term Capital Movements
    • D73 - Microeconomics - - Analysis of Collective Decision-Making - - - Bureaucracy; Administrative Processes in Public Organizations; Corruption

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