Assessment of the Symmetric and Asymmetric Effects of Exchange Rate Volatility on the Flow of Iran-China Industrial Trade

Authors

1 Faculty of Administrative Sciences and Economics, Shahid Ashrafi Esfahani University, Esfahan, Iran.

2 Faculty of Economics, University of Esfahan, Esfahan, Iran.

Abstract

The exchange rate is always interacting with internal and external variables of economy. So the relationship between the exchange rate volatility and the trade flows is one of the considerable issues in international economics. The increase and decrease of the exchange rate volatility create different effects on trade flows. The main objective of this paper is to study the symmetric and asymmetric effects of exchange rate volatility on industrial trade flows in Iran. In this paper, the symmetric and asymmetric effects of exchange rate volatility on Iran’s export and import industries (i.e. 9 industries exporting to China and 12 industries importing from China) are estimated over the period 1992-2016. Linear ARDL is used to evaluate the symmetric effects, and nonlinear ARDL approach is used to study the asymmetric effects. Results show that out of the 21 industries, almost half of the import and export industries have asymmetric effects of exchange rate volatility. Also, based on the results, the asymmetric effects vary by industry. Most of the investigated industries in this study use the exchange rate volatility as a factor for profitability and, despite volatility in exchange rates, increase their business. Therefore, this study is confirmed in most of the approved surveyed industries, where the risk theory is a portfolio.

Keywords

References

Alam, S., & Ahmad, Q. M. (2011). Exchange Rate Volatility and Pakistan’s Bilateral Imports from Major Sources: An Application of ARDL Approach. International Journal of Economics and Finance, 3(2), 245-254.
---------- (2010). Exchange Rate Volatility and Pakistan’s Import Demand: An Application of Autoregressive Distributed Lag Model. International Research Journal of Finance and Economics, 48, 7–22.
Arize, A., Malindertos, J., & Kasibhatla, K. M. (2003). Does exchange-rate volatility depress Export Flows: The Case of LDCs. International Advances in Economic Research, 9, 7–20.
Asseery, A., & Peel, D. A. (1991). The Effects of Exchange Rate Volatility on Exports: Some New Estimates. Economics Letters, 37, 173-177.
Auboin, A., & Ruta, M. (2013). The Relationship between Exchange Rates and International Trade: A Literature Review, 12, 577–605.
Bahmani-Oskooee, M., & Kanitpong, T. (2017). Do Exchange Rate Changes have Symmetric or Asymmetric Effects on the Trade Balances of Asian Countries? Applied Economic, 49(46), 1-11.
Bahmani-Oskooee, M., & Aftab, M. (2017). On the Asymmetric Effects of Exchange Rate Volatility on Trade Flows: New Evidence from US-Malaysia Trade at the Industry Level. Economic Modelling, 63, 86–103.
Bahmani-Oskooee, M., & Fariditavana, H. (2016). Nonlinear ARDL Approach and the Jcurve Phenomenon. Open Economic Review, 27, 51–70.
Bahmani-Oskooee, M., & Harvey, H. (2011). Exchange Rate Volatility and Industry Trade between the US and Malaysia. Research International Business Finance, 25, 127–155.
Bahmani-Oskooee, M., & Hegerty, S. W. (2009). The Effects of Exchange Rate Volatility on Commodity Trade between the U.S. and Mexico. Southern Economic Journal, 79, 1019–1044.
---------- (2007). Exchange Rate Volatility and Trade Flows: A Review Article. Journal of Economic Studies, 34, 211–255.
Bahmani-Oskooee, M. (1996). Exchange Rate Uncertainty and Trade Flows of LDCs: Evidence from Johansen’s Cointegration Models. Journal of Economic Development, 21(1), 23–35.
Bahmani-Oskooee, M., & Payesteh, S. (1993). Does Exchange Rate Volatility Deter Trade Volume of LDCs? Journal of Economic Development, 18, 189–205.
Bahmani-Oskooee, M., & Ltaifa, N. (1992). Effects of Exchange Rate Risk on Exports: Cross-country Analysis. World Development, 20, 1173–1181.
Baum, C. F., & Çağlayan, M. (2010). On the Sensitivity of the Volume and Volatility of Bilateral Trade Flows to Exchange Rate Uncertainty. Journal of International Money and Finance, 29, 79–93.
Benli, M. (2018). Asymmetric Effect of Exchange Rates on Exports: An Empirical Analysis of Exports from Turkey to the USA. Studies on Balkan and Near Eastern Social Sciences, 2, 195-203.
Broll, U., & Eckwert, B. (1999). Exchange Rate Volatility and International Trade. Southern Economic Journal, 66, 178–185.
De Grauwe, P. (1988). Exchange Rate Variability and the Slowdown in Growth of International Trade. Staff Papers (International Monetary Fund), 35, 63–84.
Doganlar, M. (2002). Estimating the Impact of Exchange Rate Volatility on Exports: Evidence from Asian Countries. Applied Economics Letters, 9, 859–863.
Franke, G. (1991). Exchange Rate Volatility and International Trading Strategy. Journal of International Money and Finance, 10, 292–307.
Haile, M. G., & Pugh, G. (2013). Does Exchange Rate Volatility Discourage International Trade? A Meta-regression Analysis. The Journal of International Trade & Economic Development, 22, 321–350.
Hall, S., Hondroyiannis, G., Swamy, P. A.V. B., Tavlas, G., & Ulan, M. (2010). Exchange Rate Volatility and Export Performance: Do Emerging Market Economies Resemble Industrial Countries or Other Developing Countries? Economic Modelling, 27, 1514–1521.
Hassan, M. (2013). Volatility of Exchange Rate Effecting Trade Growth - A Case of Pakistan with US, UK and UAE. European Scientific Journal, 9, 277–288.
Javed, Z. H., & Farooq, M. (2009). Economic Growth and Exchange Rate Volatility in Case of Pakistan. Pakistan Journal of Life and Social Sciences, 7(2), 112–118.
Khan, A. J., Azim, P., & Sayed, S. H. (2014). The Impact of Exchange Rate Volatility on Trade: A Panel Study on Pakistan’s Trading Partners. The Lahore Journal of Economics, 19(1), 31–66.
Kumar, R., & Dhawan, R. (1991). Exchange Rate Volatility and Pakistan’s Export to the Developed World, 1974–1985. World Development, 19, 1225–1240.
KWASI_Obeng, C. (2018). Is the Effect of Exchange Rate Volatility on Export Diversification Symmetric or Asymmetric? Evidence from Ghana. General & Applied Economics, 6, 1-11.
Lastrapes, W. D., & Koray, F. (1990), Exchange Rate Volatility and U.S. Multilateral Trade Flows. Journal of Macroeconomics, 12, 341-362.
Mustafa, K., & Nishat, M. D. (2005). Volatility of Exchange Rate and Export Growth in Pakistan: The Structure and Interdependence in Regional Market. Karachi: Institute of Business Administration.
Pesaran, M. H., Shin, Y., & Smith, R. J. (2001). Bounds Testing Approaches to the Analysis of Level Relationships. Journal of Applied Econometrics, 16, 289-326.
Quin, Y., Varangis, P. (1994). Does Exchange Rate Volatility Hinder Export Growth? Empirical Economics, 19, 371–396.
Saqib, N., & Sana, I. (2012). Exchange Rate Volatility and Its Effect on Pakistan’s Export Volume. Advances in Management & Applied Economics, 2(4), 109–124.
Sauer, C., & Bohara, K. A. (2001). Exchange Rate Volatility and Exports: Regional Differences between Developing and Industrialized Countries. Review of International Economics, 9, 133–152.
Sercu, P. (1992). Exchange Risk, Exposure, and the Option to Trade. Journal of International Money and Finance, 11, 579-593.
Sercu, P., & Uppal, R. (2003). Exchange Rate Volatility and International Trade: A General-Equilibrium Analysis”, European Economic Review, 47, 429-441.
Sercu, P., & Vanhulle, C. (1992). Exchange Rate Volatility, Exposure and the Value of Exporting Firms. Journal of Banking and Finance, 16, 155–182.
Shaikh, S. A., & Hongbing, O. (2015). Exchange Rate Volatility and Trade Flows: Evidence from China, Pakistan and India. International Journal of Economics and Finance, 7(11), 121–127.
Shin, Y., Yu, B., & Greenwood-Nimmo, M. (2014). Modeling Asymmetric Cointegration and Dynamic Multipliers in a Nonlinear ARDL Framework Festschrift in Honor of Peter Schmidt. New York: Springer.
Simakova, J. (2018). Asymmetric Effects of Exchange Rate Changes on the Foreign Trade of Czechia, Eastern European Economics, 56, 422-437.
Thursby, J. G., & Thursby, M. C. (1987). Bilateral Trade Flows, the Linder Hypothesis and Exchange Risk. The Review of Economics and Statistics, 69(3), 488-495.
Willett, T. D. (1986). Exchange-Rate Volatility, International Trade, and Resource Allocation: A Perspective on Recent Research. Journal of International Money and Finance, 5, S101-S115.
Iranian Economic Review
Volume 24, Issue 4
December 2020
Pages 999-1023

Files

Share

How to cite

Statistics