Economics at your fingertips  

Exchange Rate and Utilization of Free Trade Agreements: Focus on rules of origin

Kazunobu Hayakawa (), Han-Sung Kim and Taiyo Yoshimi ()

Discussion papers from Research Institute of Economy, Trade and Industry (RIETI)

Abstract: This paper investigates how exchange rates affect the utilization of a free trade agreement (FTA) scheme considering the importance of rules of origin (RoOs). Exchange rates affect exporters' compliance with RoOs by changing the so-called value-added ratio, which is defined as [1 - (Non-originating input price / Export product price)]. We present theoretical underpinnings on this potential linkage with a model of pricing-to-market and provide an empirical examination using rich tariff-line-level data on the utilization of FTA schemes in Korea's imports from the Association of Southeast Asian Nations (ASEAN) countries. The theoretical framework proposes that a depreciation of exporters' currency against importers' currency enhances FTA utilization by improving the value-added ratio, and such effects are stronger for products with higher demand elasticity. We also show strong empirical support for our theoretical predictions.

Pages: 28 pages
Date: 2017-01
New Economics Papers: this item is included in nep-int and nep-sea
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (2) Track citations by RSS feed

Downloads: (external link) (application/pdf)

Related works:
Journal Article: Exchange rate and utilization of free trade agreements: Focus on rules of origin (2017) Downloads
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:

Access Statistics for this paper

More papers in Discussion papers from Research Institute of Economy, Trade and Industry (RIETI) Contact information at EDIRC.
Bibliographic data for series maintained by TANIMOTO, Toko ().

Page updated 2021-10-24
Handle: RePEc:eti:dpaper:17007