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Exchange rate risk and international trade: The role of third country effect

Cengiz Tunc (), M. Nihat Solakoglu, Senol Babuscu and Adalet Hazar

Economics Letters, 2018, vol. 167, issue C, 152-155

Abstract: Using the recently launched Exporter Dynamics Database of the World Bank, this paper empirically investigates the role of external exchange rate risk (third-country effect) on trade flows between countries. We find a strong positive influence of external exchange rate risk on exports to a specific destination. However, the effect is more observable in advanced destination countries, countries with low bilateral exchange rate volatility in comparison to external exchange rate volatility, and countries in which export is concentrated among a small number of firms.

Keywords: Exchange rate volatility; International trade; Third-country effect (search for similar items in EconPapers)
JEL-codes: F14 F31 F41 (search for similar items in EconPapers)
Date: 2018
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DOI: 10.1016/j.econlet.2018.03.030

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