The effect of exchange rate volatility on trade: correcting for selection bias and asymmetric trade flows

Atef Al-Rashidi and Bidisha Lahiri

Applied Economics Letters, 2013, vol. 20, issue 11, 1121-1126

Abstract: The gravity model that serves as an important framework to explore the relation between exchange rate volatility and international trade suffers from two weaknesses: selection bias caused by dropping of observations with zero trade flows and the inability to predict asymmetric bilateral trade flows. The latter includes situations of bilateral trade in one direction but not in the opposite direction. While some recent literature has addressed the selection bias, there are no studies that address both problems in the context of the effect of exchange rate volatility on international trade. The article contributes to the literature by applying a recent model of firm selection to control for both biases. We found that the effect of exchange rate volatility on trade, that appears to be weak under the standard gravity model or in those models that only correct for sample selection bias, emerges as a strong negative effect as both biases get controlled.

Date: 2013
References: Add references at CitEc
Citations: View citations in EconPapers (2)

Downloads: (external link)
http://hdl.handle.net/10.1080/13504851.2013.791015 (text/html)
Access to full text is restricted to subscribers.

Related works:
This item may be available elsewhere in EconPapers: Search for items with the same title.

Export reference: BibTeX RIS (EndNote, ProCite, RefMan) HTML/Text

Persistent link: https://EconPapers.repec.org/RePEc:taf:apeclt:v:20:y:2013:i:11:p:1121-1126

Ordering information: This journal article can be ordered from
http://www.tandfonline.com/pricing/journal/RAEL20

DOI: 10.1080/13504851.2013.791015

Access Statistics for this article

Applied Economics Letters is currently edited by Anita Phillips

More articles in Applied Economics Letters from Taylor & Francis Journals
Bibliographic data for series maintained by Chris Longhurst ().