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

Suwijak Suwanhirunkul and Abul Masih

MPRA Paper from University Library of Munich, Germany

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.

Keywords: exchange rate; trade balance; nonlinear ARDL; Thailand (search for similar items in EconPapers)
JEL-codes: C22 C58 F1 F31 (search for similar items in EconPapers)
Date: 2018-06-16
New Economics Papers: this item is included in nep-ets, nep-int and nep-sea
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (1)

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