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The Effect of Exchange Rate Volatility on International Trade: The Implication for Production Networks in East Asia

Kazunobu Hayakawa () and Fukunari Kimura ()

No 156, IDE Discussion Papers from Institute of Developing Economies, Japan External Trade Organization(JETRO)

Abstract: This paper is an empirical investigation of the relationship between exchange rate volatility and international trade, focusing on East Asia. It finds that intra-East Asian trade is discouraged by exchange rate volatility more seriously than trade in other regions because intermediate goods trade in production networks, which is quite sensitive to exchange rate volatility compared with other types of trade, occupies a significant fraction of trade. In addition, this negative effect of volatility is mainly induced by the unanticipated volatility and has an even greater impact than that of tariffs.

Keywords: Exchange rate volatility; Trade; East Asia; International trade; Foreign exchange; 為替変動; 貿易; 東アジア; 外国為替 (search for similar items in EconPapers)
JEL-codes: F10 F31 N75 (search for similar items in EconPapers)
New Economics Papers: this item is included in nep-cba, nep-fmk, nep-int, nep-opm and nep-sea
Date: 2008-05-01
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Published in IDE Discussion Paper = IDE Discussion Paper, No. 156. 2008-05-01

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