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The Effect of Exchange Rate Volatility on International Trade in East Asia

Kazunobu Hayakawa () and Fukunari Kimura ()

No d003, Working Papers from Economic Research Institute for ASEAN and East Asia (ERIA)

Abstract: In this paper, we empirically investigate the relationship between exchange rate volatility and international trade, focusing on East Asia. Our findings are summarized as follows: first, intra-East Asian trade is discouraged by exchange rate volatility more seriously than trade in other regions. Second, one important source for the discouragement is that intermediate goods trade in international production networks, which is quite sensitive to exchange rate volatility compared with other types of trade, occupies a significant fraction of East Asian trade. Third, the negative effect of the volatility is greater than that of tariffs and smaller than that of distance-related costs in East Asia.

Keywords: Exchange rate volatility; Trade; East Asia (search for similar items in EconPapers)
JEL-codes: F10 F31 N75 (search for similar items in EconPapers)
Date: 2008-12-12
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