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Exchange rate volatility and ASEAN-4’s trade flows: is there a third country effect?

Abdorreza Soleymani, Soo Y. Chua () and Abdul Fatah Che Hamat
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Abdorreza Soleymani: Universiti Sains Malaysia
Soo Y. Chua: Universiti Sains Malaysia
Abdul Fatah Che Hamat: Universiti Sains Malaysia

International Economics and Economic Policy, 2017, vol. 14, issue 1, No 6, 117 pages

Abstract: Abstract This paper investigates the impact of exchange rate volatility on the trade flows among ASEAN-4 countries (Indonesia, Malaysia, Singapore and Thailand) as well as to their five main trading partners. External volatility is included in the models to study the ‘third country’ effect on the trade flows. We employ annual import and export data over the period of 1980–2012. The results from the bounds testing approach to cointegration and error-correction model reveal that the real exchange rate volatility does play a significant role in 15 export and four import models in short-run and long-run. Moreover, in both import and export models, the effects of exchange rate volatility on trade flows are negative rather than positive. Finally, the effects of volatility from the ASEAN-4’s currency/yuan rate dominate the third country effect on the ASEAN-4’s trade.

Keywords: ASEAN; Trade flows; Exchange rates volatility; Cointegration (search for similar items in EconPapers)
JEL-codes: F31 F14 F32 (search for similar items in EconPapers)
Date: 2017
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DOI: 10.1007/s10368-015-0328-9

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