Exchange rate volatility,international trade and labour demand

The purpose of this study is to assess under what conditions exchange rate volatility generates a positive effect on an exporting firm’s labour demand. As the exchange rate volatility increases, so does the value of the export option, provided that firms are flexible with respect to international trade. Higher volatility increases the potential gains from trade and can increase the demand for labour. The firm’s trade flexibility can be interpreted as a real hedging strategy when financial markets are incomplete. In many newly industrializing countries and emerging economies financial markets are imperfect or risk sharing markets are just starting to develop at a rather slow pace.     

Exports and Productivity Selection Effects for Dutch Firms

The paper tests whether recent theories of international trade with heterogeneous firms can explain the export patterns in Dutch firm- and plant- level data in manufacturing and services. Recent trade models with heterogeneous firms predict that the export decision of firms is affected by sunk entry costs in foreign markets, with only the most productive firms self-selecting into exports. We test a latent variable model of the export decision by probit regressions and standard OLS panel regressions. Our results support the self-selection prediction. The process further appears to be conditioned by scale effects, market structure and multinational affiliation. Regarding alternative explanations, we do not find evidence for the learning-by-exporting hypothesis, even when controlling for the firm’s distance to the international productivity frontier.     

Measuring the Effect of Food Safety Standards on China’s Agricultural Exports

According to China’s recent experiences in agricultural trade disputes with the developed countries, China’s exports might be constrained by nontariff barriers. The significance of these barriers is assessed in regression analyses by using a gravity model of agricultural product trade to test the effect of the residue standards on China’s export of vegetables (Chlorpyrifos MRL) and aquatic products (Oxytetracycline MRL). The results show that food safety standards imposed by importing countries have a negative and statistically significant effect on China’s export of agricultural products. The trade effect of food safety standards is much larger than that of the import tariff. JEL no. F13, F14     

Exchange Rate Volatility and International Trade

The purpose of this note is to show that a positive effect of exchange rate volatility on export production has a theoretical basis. The key to this claim is that, as the exchange rate volatility increases, so does the value of the real option to export to the world market. Higher volatility increases the potential gains from trade. This may explain part of the mixed empirical findings regarding the effects of exchange rate risk on international trade.     

Some Further Evidence on Exchange-Rate Volatility and Exports

The relationship between exchange-rate volatility and aggregate export volumes is examined using a model that includes real export earnings of oil-exporting economies as a determinant of export volumes of a sample of 12 industrial countries. Four fixed-coefficient panel-data estimation techniques, including a generalized method of moments (GMM) and random coefficient (RC) estimation, are employed on panel data covering the estimation period 1977:1–2003:4 using three measures of exchange-rate volatility. Our aim is to provide a theoretically and empirically justifiable specification that can guide researchers. In contrast to recent studies employing panel data, we find little evidence that volatility has a negative and significant impact on trade. We use second-generation RC estimation, which corrects for biases arising from incorrect functional forms, omitted variables, and measurement errors. Our results suggest that the finding of a significant and negative impact of volatility is attributable to specification biases. JEL no. C23, F3, F31     

Natural resources and non-cooperative trade policy

When looking at the conditions of trade in natural resources the world appears upside down: tariff protection in natural resources sectors is generally lower than for overall merchandise trade, while export restrictions are twice as likely as in other sectors. On the other hand, tariff escalation is significant in natural resources sectors, where materials in their raw state face, on average, lower duties than in their processed form. In this paper, we discuss how export taxes and tariff escalation may be the result of an uncooperative trade policy. Specifically, tariff escalation and export taxes can be “beggar-thy-neighbor” policies because governments may be tempted to use them to alter the relative price of exports to their advantage (terms-of-trade effect) or to expand the domestic processing industry at the expenses of foreign production (production relocation effect). In equilibrium, these policies offset each other in a Prisoners’ Dilemma situation, where trade is inefficiently low.     

Exchange rate volatility and ASEAN-4’s trade flows: is there a third country effect?

This paper investigates the impact of exchange rate volatility on the trade flows among ASEAN-4 countries (Indonesia, Malaysia, Singapore and Thailand) as well as to their five main trading partners. External volatility is included in the models to study the ‘third country’ effect on the trade flows. We employ annual import and export data over the period of 1980–2012. The results from the bounds testing approach to cointegration and error-correction model reveal that the real exchange rate volatility does play a significant role in 15 export and four import models in short-run and long-run. Moreover, in both import and export models, the effects of exchange rate volatility on trade flows are negative rather than positive. Finally, the effects of volatility from the ASEAN-4’s currency/yuan rate dominate the third country effect on the ASEAN-4’s trade.     

Monotonicity of indices of “Revealed“ comparative advantage: Empirical evidence on Hillman’s condition

Conclusions The necessary and sufficient condition suggested by Hillman [1980] for the index of RCA, when used in cross-country comparisons, to provide a one-to-one relationship between pre-trade comparative advantage and revealed comparative advantage is fulfilled for the great majority of the “commodities” traded in 1985 by 118 developing economies. Given the low level of data aggregation (the lowest for which statistical information is currently available), the large sample of countries and the high percentage of developing economies’ total exports captured in this research, we can conclude that Balassa’s export-performance index, for cross-country comparisons, is a good indicator of comparative advantage as reflected by pre-trade prices. In other words, Hillman’s condition is a useful indicator of the presence of monotonicity in indices of RCA: we have observed that at a 5-digit level of commodity aggregation, increases in Balassa’s export performance index of RCA are likely to correspond to increases in export levels. Aggregation of commodities at a 3-digit and at a 1-digit level suggests that Hillman’s condition is unlikely to be violated if the cause for values of the Hillman’s Index less than one is due to export specialization; on the contrary, the number of cases of a Hillman Index smaller than one due to a large share of world markets is expected to be negatively related to the level of aggregation. Our results suggest that Hillman’s index should be calculated in any empirical investigation trying to assess the long-term implications of trade liberalization negotiations using an export-performance index of RCA. There is evidence that, if used at a disaggregated level, the HI is a tool that may help flag cases in which the RCA index can be a misleading indicator of countries’ comparative advantage, even in cross-country comparisons. It may also help reduce disagreements regarding the most appropriate coefficient of RCA. Further research should be directed toward enlarging the sample of countries to include the entire world and to incorporate at least three years of trade so as to be able to eliminate the possible influence of cycles.     

金融危机与福建出口贸易发展的稳定性分析——基于福建和江苏的比较研究

入世以来,较之于江苏出口贸易的强劲发展势头,福建则表现出明显的增长乏力特征。在国际金融危机期间,相对于江苏而言,福建的出口贸易遭受冲击的程度相对小些。研究表明,在中国融入经济全球化程度逐步加深的今天,出口波动性小的地区的贸易发展并不意味着一定优于出口波动性大的。     

The Rise of China: Prospects of Regional Trade Policy

China now engages in multilateral trade liberalization as a new member of the WTO. Concurrently, the number of regional trade agreements is increasing worldwide. China and its trading partners would benefit from increased regional liberalization. Using a gravity equation for 23 Asia-Pacific countries between 1992 and 2000, we show that ASEAN and APEC currently have small effects on Asia-Pacific exports, which are mainly influenced by growth, trade barriers, and common language. However, we find that China’s participation in regional agreements has large export potentials, not only with respect to ASEAN, but also in a broad agreement including South and East Asian countries. JEL no. F15, F17     

Eliminating contradictions in the domestic metals market under crisis conditions

The influence of foreign trade policy on the development of Russian metallurgy increased from 1990 to 2000. The 2008–2009 crisis makes it possible to critique the achieved results and what consequences metallurgical companies’ orientation toward export has had on Russia’s domestic metals market and the circulation of metal. Alternatives are considered for possible development of metallurgy as affected by the basic trends of metal and capital in the world and domestic markets.     

The Declining Impact of Exchange Rate Volatility on Trade

The introduction of the euro in 1999 eliminated exchange rate volatility between the members of the eurozone. Despite the elimination of currency risks, trade flows within the eurozone hardly increased (Bun and Klaassen in Oxf Bull Econ Stat 69:473–496, 2007, Santos Silva and Tenreyro, 2009). Using a standard gravity model, we find that nominal exchange rate volatility has had a negative effect on trade before 1985 but that this effect disappeared in later years, coinciding with the introduction and rapid diffusion of over-the-counter currency swaps. The estimated coefficient for the euro dummy does not change when we include nominal exchange rate volatility as an additional regressor. This confirms our finding that the impact of exchange rate volatility on trade has been small in more recent years.     

Exports and Productivity Growth: First Evidence from a Continuous Treatment Approach

A recent survey of 54 micro-econometric studies reveals that exporting firms are more productive than non-exporters. However, previous empirical studies show that exporting does not necessarily improve productivity. One possible reason for this result is that most previous studies are restricted to analysing the relationship between a firm’s export status and the growth of its labour productivity, using the firms’ export status as a binary treatment variable and comparing the performance of exporting and non-exporting firms. In this paper, we apply the newly developed generalised propensity score (GPS) methodology that allows for continuous treatment, that is, different levels of the firms’ export activities. Using the GPS method and a large panel data set for German manufacturing firms, we estimate the relationship between a firm’s export-sales ratio and its labour productivity growth rate. We find that there is a causal effect of firms’ export activities on labour productivity growth. However, exporting improves labour productivity growth only within a sub-interval of the range of firms’ export-sales ratios. JEL no.  F14, F23, L60     

Overall trade specialization and economic development: countries diversify

This paper provides evidence for an aspect of trade often disregarded in international trade research: countries’ sectoral export diversification. The results of our semiparametric empirical analysis show that, on average, countries do not specialize; on the contrary, they diversify. Our results are robust for different statistical indices used to measure trade specialization, for the level of sectoral aggregation, and for the level of smoothing in the nonparametric term associated with per capita income. Using a generalized additive model (GAM) with country-specific fixed effects it can be shown that, controlling for countries’ heterogeneity, sectoral export diversification increases with income.

The Impact of Korea's Exchange Rate Volatility on Korean Trade

This study uses a GARCH-in-mean model to analyse the impact of Korea's nominal exchange rate volatility on exports and export prices over the current flexible-rate period. The volatility of Korea's won increases the exchange risk of exporters and leads to changes in export volume and price. This paper provides some evidence that nominal exchange rate volatility has had a statistically significant impact on real exports over the current floating-rate period. We show that persistence-in-variance of exchange rates affects the market for exports in Korea. An important result is that the effect of exchange rate volatility on trade variables is shown to be significant. We find that the GARCH conditional variance has a statistically significant impact on the reduced form equations. The magnitude of the effect is generally stronger for export quantities than prices. This result is contradicts that of Kroner and Lastrapes's analysis. This is explained by the fact that Korean exporters choose the strategy of pricing to maintain market share instead of adjusting export prices to reflect exchange rate changes, even when this cuts profit margins.     

Export characteristics and output volatility: comparative firm-level evidence for CEE countries

The literature shows that openness to trade improves long-term growth but also that it may increase exposure to high output volatility. In this vein, our paper investigates whether exporting and export diversification at the firm level have an effect on the output volatility of firms. We use large representative firm-level databases from Estonia, Hungary, Romania, Slovakia and Slovenia over the last boom–bust cycle in 2004–2012. The results confirm that exporting is related to higher volatility at the firm level. There is also evidence that this effect increased during the Great Recession due to the large negative shocks in export markets. We find that export diversification mitigates volatility only in some cases. Exporting more products or serving more markets does not necessarily result in higher stability of firm sales.     

The Impact of Korea's Exchange Rate Volatility on Korean Trade

This study uses a GARCH-in-mean model to analyse the impact of Korea's nominal exchange rate volatility on exports and export prices over the current flexible-rate period. The volatility of Korea's won increases the exchange risk of exporters and leads to changes in export volume and price. This paper provides some evidence that nominal exchange rate volatility has had a statistically significant impact on real exports over the current floating-rate period. We show that persistence-in-variance of exchange rates affects the market for exports in Korea. An important result is that the effect of exchange rate volatility on trade variables is shown to be significant. We find that the GARCH conditional variance has a statistically significant impact on the reduced form equations. The magnitude of the effect is generally stronger for export quantities than prices. This result is contradicts that of Kroner and Lastrapes's analysis. This is explained by the fact that Korean exporters choose the strategy of pricing to maintain market share instead of adjusting export prices to reflect exchange rate changes, even when this cuts profit margins.     

Exports versus FDI: do firms use FDI as a mechanism to smooth demand volatility?

In this paper, we first develop a simple two-period model of oligopoly to show that, under demand uncertainty, whether a firm chooses to serve foreign markets by exports or via foreign direct investment (FDI) may depend on demand volatility along with other well-known determinants such as size of market demand and trade costs. Although fast transport such as air shipment is an option for exporting firms to smooth volatile demand in foreign markets, market volatility may systematically trigger the firms to undertake FDI. We then use a rich panel of US firms’ sales to 56 countries between 1999 and 2004 to confront this theoretical prediction and show strong evidence in support of the prediction     

Entering new country and product markets: does export promotion help?

Entering new export markets is primarily a discrete choice. Even though several empirical papers have used modeling strategies consistent with this fact, no study has examined the effects of public policies aimed at affecting this decision within this setting. In this paper we assess the impact of trade promotion activities on export outcomes using trade support and highly disaggregated export data for the entire population of exporters of Uruguay, a small developing country, over the period 2000–2007 to estimate a binary outcome model that allows for unobserved heterogeneity. We find that trade supporting activities have helped firms reach new destination countries and introduce new differentiated products.     

A dynamic analysis of the impact of uncertainty on import- and/or export-led growth: The experience of Japan and the Asian Tigers

Increasing integration of the Asian Tigers with the world economy through trade has exposed their income and trade to greater uncertainty and volatility. This paper models uncertainty in trade and income and re-examines the stability of the trade-growth nexus for Japan and the Asian Tigers in a dynamic framework. We find that in a volatile environment Japan's GDP growth is only import-led while Hong Kong's GDP growth is both export and import growth-led. On the other hand, incorporating uncertainty breaks the causal link between Korea's GDP growth and trade but it does not affect Taiwan's mutually causative relationship between GDP growth, with exports and imports. Lastly, the varied qualitative and quantitative impact of volatility in imports and exports on income growth among the Asian Tigers provides further thought for policy making.