An Empirical Sector-Specific Gravity Model for Hungarian International Trade

Jana Šimáková and Daniel Stavarek
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Jana Šimáková: Department of Finance and Accounting, School of Business Administration in Karvina, Silesian University in Opava, Univerzitní náměstí 1934/3, 733 40 Karviná, Czech Republic

Acta Universitatis Agriculturae et Silviculturae Mendelianae Brunensis, 2015, vol. 63, issue 6, 2145-2150

Abstract: This paper contributes to the economic literature on the impact of exchange rate volatility on Hungary's foreign trade. Basic gravity model shows that trade volume between a pair of countries is an increasing function of their sizes (GDP) and a decreasing function of the distance between them. Additional factors included in extended model are population, dummy for common border and proxy for exchange rate volatility. The measure of exchange rate volatility is estimated by GARCH model. This paper explores relationship between trade and exchange rate uncertainty using quarterly data over the period 1999:1 - 2014:3. In order to obtain the objective result, we use the panel data regression for 10 sectors of Hungarian international trade based on SITC classification and six major trading partners (Austria, Germany, France, United Kingdom, Italy and Poland). The significant parameters obtained from panel regression demonstrate that bilateral exchange rate volatility leads to a decrease in Hungary's foreign trade.

Keywords: exchange rate volatility; international trade; gravity model (search for similar items in EconPapers)
Date: 2015
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Persistent link: https://EconPapers.repec.org/RePEc:mup:actaun:actaun_2015063062145

DOI: 10.11118/actaun201563062145

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