DO EXCHANGE RATE CHANGES HAVE SYMMETRIC OR ASYMMETRIC EFFECTS ON INTERNATIONAL TRADE INTEGRATION?

Suresh Kumar Oad Rajput, Niaz Hussain Ghumro () and Nadia Anjum ()
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Suresh Kumar Oad Rajput: Faculty of Business Administration, Sukkur IBA University, Pakistan
Niaz Hussain Ghumro: Faculty of Business Administration, Sukkur IBA University, Pakistan
Nadia Anjum: Faculty of Business Administration, Sukkur IBA University, Pakistan

Annals of Financial Economics (AFE), 2019, vol. 14, issue 03, 1-21

Abstract: This paper investigates whether exchange rate changes have symmetric or asymmetric effects on international trade integration, using quarterly time series data from 1980: Q1 till 2018: Q2. The recent innovation in cointegration techniques allows us to estimate nonlinear effects. We apply both linear autoregressive distributed lags (ARDL) and nonlinear ARDL models. The empirical results indicate that asymmetric relationship exists between exchange rate (REER) and international trade integration (ITI) in the short-run as well as in the long-run, meaning that real effective exchange rate has negative and statistically significant effects on international trade integration. Robustness checks indicate no role of various crisis including GFC on the relationship between ITI and REER, however, regime change has significantly negative impact in short-run and positive in long-run on ITI. The results are important because when we separate currency appreciation from the depreciation, it has the significant and different effects on international trade integration.

Keywords: Nonlinear ARDL; international trade integration; symmetry; asymmetry; exchange rate (search for similar items in EconPapers)
Date: 2019
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DOI: 10.1142/S2010495219500131

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