Volume 4 • Issue 2 | July 2020

Asymmetric Impact of Exchange Rate on Trade Balance: How Do Country Characteristics Imply?

Pham Thi Tuyet Trinh, Le Hoang Long

Abstract: The study investigates the asymmetric impact of the exchange rate on aggregate trade balance of 45 countries taking account of country characteristics, including development, exchange rate system, openness, and export diversification. Employing non-linear autoregressive distributed lag (ARDL) methodology; the study comes to several findings. First, the exchange rate does have an asymmetric impact on aggregate trade balance across countries in both the short and long-run. However, either appreciation or depreciation shows a consistent superior effect on the trade balance in comparison with the other. Second, although results among country groups of development, exchange rate regime or openness are not obviously different, developed countries show the more powerful impact of exchange rate than developing countries on the average and insignificant effects of exchange rate on trade balance are found only in low openness countries. Finally, currency depreciation to improve trade balance widely works in higher diversified exporters but does not work in lower diversified exporters

JEL classification: F31,F32,F40