Title
The External Exchange Rate Volatility Influence on The Trade Flows: Evidence from Nonlinear ARDL Model
Authors
Abstract
Purpose: Major trade partners of China, including Germany, Korea, the United Kingdom, the Netherlands, Malaysia, and Mexico, are examined in the research to see how currency exchange rate variations affect everything for Germany, Korea, the United Kingdom, the Netherlands, Malaysia, and Mexico. Our study also extends the existing literature by investigating the influence of external instability on Chinese exports to the US.
Study design/methodology/approach: To conduct this study’s analysis, we apply the bounds test technique to the co-integration and error correction model to examine the asymmetric influence of third-country exchange rate volatility on trade flows of China in the short-run and long-run effect through measuring with two approaches, ARDL and NARDL on bilateral trade among Korea, Germany, Netherlands, United Kingdom, Malaysia, and Mexico.
Findings: The investigation found that third-country exchange rate (China/USD) volatility has a varying influence on China’s exports to different countries, with short-term asymmetrical effects observed in Korea, Germany, the United Kingdom, and Malaysia. In the long run, only Korea and the United Kingdom show an asymmetric effect on China’s exports. These findings highlight the need to consider the impact of significant fluctuations in third-country exchange rate volatility before making relevant policies or decisions.
Originality/value: As far as we know, this is the first paper in the literature that employs quantitative models, analyzes the empirical data, and provides various insights which are helpful in the decision-making process concerning export strategies, exchange rates, and international trade.
Keywords
Third country exchange rate volatility (TCV), exports, China, Autoregressive Distributive Lag model, Nonlinear ARDL model
Classification-JEL
F31, F41, C32
Pages
75-98