Trade Balance and the Real Exchange Rate

Abstract

Literature on international trade has been inconclusive on the matter of exchange rate and its impact on trade. The article finds that for a panel of regions, during the period 1980–2010, the imports in all countries respond to changes in real exchange rate, as predicted in theory. Exports on the other hand exhibit value and volume adjustments. A similar analysis of the bilateral trade shows exchange rate matters for only a few countries, to the extent that they lead to adjustments in exports. These results provide the basis for further analysis of the causes underlying such mechanisms and availability of the possibility of using exchange rate as an instrument to correct imbalances in the external account.

Does exchange rate volatility influence import commodities of India-US? Evidence from ARDL approach

“…After globalization, the relationship between real exchange and trade balance is affected as the growth gain in industries drives the trade balance to the real exchange rate more sensitive. The literature includes various developing countries to infer the effect of real exchange rate depreciation do improve the trade balance, which is also statistically supported by Tandon (2014), Blavasciunaite et al (2020), Chod et al (2019). The Marshall Lerner conditions (Rose, 1991) suggest that depreciation of the exchange rate of one country to other countries will boost the trade balance, relationship between exchange rate and trade balance is investigated by numerous studies including developing countries namely Malaysia, Japan, China, the US, New Zealand, Fiji and ten African countries (for instance Ayres et al , 2019; Çulha et al , 2019; Bahmani-Oskooee and Gelan, 2018; Bahmani-Oskooee and Gelan, 2019; Ready et al , 2017; Kyereme, 2002; Yol and Baharumshah, 2007).…”

Exchange Rate Volatility and Import Trade Flow Evidence From India-U.S. at Industry Level

“…As the concentration of this paper is on tradable goods, also considering tradeable goods direct the competitiveness in the international market (Abbas Ali, Johari, & Haji Alias, 2014). In the study of Tandon, (2014), the article exhibit the findings on panel of regions taking period of 1980-2010 on bilateral trade focusing on import. The finding of import supports the theory of exchange rate and the changes in exchange rate.…”

The Basic Laws of Trade: Reconstructing the Theory of International Trade

“…Besides, many empirical pieces of research also support our hypothesis, that exchange rate misalignment is directly related to trade imbalances. Undervalued (toolow exchange rate) countries tend to have a surplus and overvalued (too-high exchange rate) countries tend to have a deficit (Rodrik, 2008), (OECD, 2011), (Kharroubi, 2011), (Tandon, 2014), and (Neumann & Tabrizy, 2021).…”