Bilateral Trade Flows, the Linder Hypothesis, and Exchange Risk

Thursby, Jerry G.; Thursby, Marie C.

doi:10.2307/1925537

Cited by 357 publications

(185 citation statements)

References 16 publications

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“…An increase in the GDPi to j by 1% leads to an increase of 0.15 or more on average. This result is in line with other findings (Frankel et al 1995;Tinbergen 1962;Aitken 1973;Poyhonen 1963;Bergstrand 1985Bergstrand , 1989Bergstrand , 1990Aitken and Obutelewicz 1976;Christerson 1994;Thursby and Thursby 1987;Prewo 1977, 1982).…”

Section: Interpretation Of Resultssupporting

confidence: 92%

The Gravity Model Approach: An Application on the Eco Was Trading Bloc

Luqman

Bakar

Izraf

2016

South East European Journal of Economics and Business

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This study aims to examine bilateral trade flows across ECOWAS-15 nations with the use of a panel and cross section for the period of 1981-2013. The methodology carried out to achieve this objective involves the use of various techniques of estimation for the gravity model (Static and dynamic). More specifically, this study aims to investigate the formational impact of regional trade integration agreements on trade flows within a group of countries using the same currencies and ECOWAS at large. The main use of regional variables into gravity models is intended to determine whether RTAs lead to trade creation, or diversion. The results show the presence of a strong relationship among the factors of both RIAs and trade flows.

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Section: Interpretation Of Resultssupporting

confidence: 92%

The Gravity Model Approach: An Application on the Eco Was Trading Bloc

Luqman

Bakar

Izraf

2016

South East European Journal of Economics and Business

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“…Kandilov (2008) finds that the exchange rate volatility had a negative impact on trade flows and the impact was larger in the agricultural sector and even worse in the case of developing countries. Similarly, Thursby and Thursby (1987), Pick (1990), Chowdhury (1993), Arize et al (2000Arize et al ( , 2008, Doganlar (2002), Chit et al (2010), Zhao (2010) and Kafle and Kennedy (2012) find that the exchange rate volatility has had a negative impact on trade flows. On the other hand, Klein (1990), Pick (1990), Broll and Eckwert (1999), Awokuse and Yuan (2006), Choudhry (2008) and Jozsef (2011) are some of the researchers who report a positive impact of the exchange rate volatility on agricultural and the total trade flows.…”

Section: Literature Reviewmentioning

confidence: 98%

The effect of real exchange rates and their volatilities on the selected agricultural commodity exports: A case study on Turkey, 1971-2010

Yanıkkaya¹,

Kaya²,

Koçtürk³

2013

Agric. Econ. - Czech

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235After the collapse of the Brettonwood system in 1973, most of the countries have abandoned to use solely the fixed exchange rate regime, and different countries have adapted different exchange rate regimes. Then, the impact of both the exchange rate level and the exchange rate volatility or variability especially on exports, the bilateral trade flows and the volumes of trade have been empirically and theoretically discussed.A large number of studies examine both the effect of the exchange rate and its volatility on agricultural trade. However, no consensus was reached yet on the relationship between the exchange rate and agricultural trade. As discussed in the literature, it is important to use disaggregated data and/or data on the individual commodities to get more meaningful results on the size and magnitude of the effects of the real exchange rates on agricultural commodities trade. (Awokuse and Yuan 2006;Byrne et al. 2008;Bahmani-Oskooee and Hegerty 2009;Karemera et al. 2011). Byrne et al. (2008) discuss the possibility of finding a negative effect of the exchange rate volatility on trade by pooling the data of all industries together, and claim that the disaggregation of the data such as firm, industry or commodity level could provide more appropriate and meaningful results. Considering the individual sectors and/or commodities is vitally important to understand the exact nature of the relation and to further tailor effective policy measures based on these fine results. Thus, we investigate the relationship between the real exchange rates and several of the most important Turkish agricultural commodities. They represent almost a quarter of the overall Turkish agricultural exports. LITERATURE REVIEWA number of studies ( Hooper and Kohlhagen 1978;Arize et al. 2008;Kafle and Kennedy 2012) argue that the exchange rate volatility can have a negative effect on the international trade flows, either directly through the uncertainty and adjustment costs or indirectly through its effect on the allocation of resources and government policies. The volatile nature of exchange rates has always led risk-averse traders to reduce their trading activities ultimately reducing the international trade flows. However, Arize et al. Abstract: Th is study investigates the eff ect of the exchange rate volatility and the real exchange rate on the bilateral agricultural exports fl ows of Turkey to 46 countries. A panel data set, which contains 46 cross-sections and 1840 observations, is used for exports of the selected agricultural commodities to countries from 1971 to 2010. Our empirical results based on a gravity equation show that while the exchange rate volatility does not exert a signifi cant eff ect on the Turkish agricultural commodity exports, the real exchange rate has a statistically signifi cant eff ect on the agricultural commodity export fl ows. Regardless of the region chosen, raisins and tobacco exports are very much sensitive to the real exchange rates. It means that any depreciation in the Turkish Lira leads to hig...

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“…5 Furthermore, results on fixed exchange rates 1 There is a literature in which exchange rate volatility is used as a regressor in import and export equations and, generally, the coefficients on exchange rate volatility are either insignificant or small enough to suggest that a reduction in exchange rate volatility has a small effect on trade. See, for example, Cushman (1983Cushman ( , 1986Cushman ( , 1988, Gotur (1985), Hooper and Kohlhagen (1978), IMF (1984), Kenen and Rodrik (1986), Klein (1990), and Thursby and Thursby (1987). 2 See, for example, Rose (2000), Rose and Van Wincoop (2001), Glick and Rose (2002), and Frankel and Rose (2002).…”

Section: Introductionmentioning

confidence: 99%

Fixed exchange rates and trade

Klein

Shambaugh

2006

Journal of International Economics

136

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Abstract:A classic argument for a fixed exchange rate is its promotion of trade. Empirical support for this, however, is mixed. While one branch of research consistently shows a small negative effect of exchange rate volatility on trade, another, more recent, branch presents evidence of a large positive impact of currency unions on trade. This paper helps resolve this disconnect. Our results, which use a new data-based classification of fixed exchange rate regimes, show a large, significant effect of a fixed exchange rate on bilateral trade between a base country and a country that pegs to it. Furthermore, the web of fixed exchange rates created when countries link to a common base also promotes trade, but only when these countries are part of a wider system, as during the Bretton Woods period. These results suggest an economically relevant role for exchange rate regimes in trade determination since a significant amount of world trade is conducted between countries with fixed exchange rates.

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Bilateral Trade Flows, the Linder Hypothesis, and Exchange Risk

Cited by 357 publications

References 16 publications

The Gravity Model Approach: An Application on the Eco Was Trading Bloc

The Gravity Model Approach: An Application on the Eco Was Trading Bloc

The effect of real exchange rates and their volatilities on the selected agricultural commodity exports: A case study on Turkey, 1971-2010

Fixed exchange rates and trade

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