Intra-Asia Exchange Rate Volatility and Intra-Asia Trade: Evidence by Type of Goods
Policy makes should be concerned about intraregional exchange rate volatility which hurts intraregional trade. Its adverse impact is concentrated in intermediate and equipment goods, the two most heavily traded products in the region.
This paper examines the impact of intra-Asia exchange rate volatility on intra-Asia trade in primary goods, intermediate goods, equipment goods, and consumption goods from 1980 to 2009. For Asia, the evidence shows that as intraregional exchange rate volatility increases, intraregional exports in all these goods fall. This adverse impact is even more pronounced in the sub-region of Association of Southeast Asian Nations (ASEAN)+5 (the People’s Republic of China; Hong Kong, China; Japan; the Republic of Korea; and Taipei,China) and especially among intermediate and equipment exports. These results have useful policy implications on the maintenance of exchange rate stability in the region.
- Brief Theoretical and Empirical Review
- Data and Estimation Issues