The Effects of Competitiveness on Trade Balance: The Case of Southern Europe

Bajo‐Rubio, Oscar; Berke, Burcu; Esteve, Vicente

doi:10.5018/economics-ejournal.ja.2016-30

Cited by 5 publications

(6 citation statements)

References 26 publications

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“…Overall, these results suggest that financial markets are developed enough, at least in advanced countries, so that exchange rate volatility has not hindered the evolution of exports. In addition, when coupled with the results in Bajo-Rubio et al (2016), boosting world demand appears as the main factor that might encourage a recovery of European trade throughout the current crisis.…”

Section: Discussionmentioning

confidence: 98%

Exchange rate volatility in the eurozone

2020

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The current economic crisis has witnessed a strong deceleration in the growth of international trade. This has been even greater in the cases of the European Unionand the eurozone, where the rates of export growth have even reached negative figures. In this paper, the authors examine to which extent exchange rate volatility might account for the drop in the rate of growth of exports in the eurozone since the start of the crisis. To that end, they estimate export functions, augmented to include several measures of exchange rate volatility, for the four largest economies of the eurozone, i.e., France, Germany, Italy and Spain, for the period 1994:1–2014:4. In the empirical application, the authors make use of two alternative measures for exchange rate volatility, i.e., (i) the Standard deviation and (ii) the conditional variance from the GARCH methodology, of the change in the logarithm of the exchange rate, for both nominal and real exchange rates, and in the latter case computed using as deflators both Export prices and unit labour costs. The empirical results show no clear-cut evidence on the impact of exchange rate volatility on the exports of the countries analysed, suggesting that financial markets were developed enough so that exchange rate volatility does not hinder the evolution of exports.

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Section: Discussionmentioning

confidence: 98%

Exchange rate volatility in the eurozone

2020

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“…According to Bajo-Rubio and Esteve (2016), there is no obvious empirical relationship between the exchange rate and the trade balance among Southern European countries that are members of the Eurozone (Greece, Italy, Portugal, and Spain). Spain and Italy have done well, despite their economies' lower productivity and their incapacity to engage in the monetary and exchange rate sectors, because their major exports originate from large domestic enterprises (Bajo-Rubio & Esteve, 2016). Shawa and Shen (2013) found that the factors influencing Tanzania's trade balance are often not included in empirical research.…”

Section: Literature Reviewmentioning

confidence: 99%

The Effect of Foreign Direct Investments on Trade Balance in Southeast Europe during the Period 2000–2018

Qehaja

ZEKA²,

Hoti

2022

IJAEFA

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This research analyzed the effect Foreign Direct Investments (FDI) have on the levels of exports, imports, and trade balance of six Western Balkan countries (Kosovo, Albania, North Macedonia, Bosnia and Hercegovina, and Serbia). The impact of FDI was measured using panel data for 2000–2018 for the analyzed countries, estimated using a fixed effects specification. We found that an increase in FDI as a percentage of Gross Domestic Product (GDP) had a positive and significant effect on the level of exports and imports expressed as a percentage of GDP, although the effect on imports was greater. Furthermore, when we assessed the impact of FDI on the trade balance of the analyzed countries, we found that FDI had a significant negative effect on the level of the trade balance expressed as a percentage of GDP. These results can be attributed, among other reasons, to the fact that FDI causes an increase in aggregate demand in the short run, which, in developing and middle-income countries, cannot be covered by the domestic market; thus, the demand for imports increases more rapidly than the capacity to increase exports.

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“…This leaves the issue of the trade balance effect of currency depreciation empirical. Though appreciation or depreciation of exchange rate does not guarantee the loss or gain of competitiveness, movements of domestic wages and prices (the so-called internal interventions) do matter (Bajo-Rubio et al, 2016); many countries around the world operating under both fixed and flexible exchange rate regimes have undervalued their currencies to improve their trade balances since the early 1970s. Baldwin and Krugman (1989) and Clark et al (1994) explain how currency overvaluation can be the cause of persistent loss of trade competitiveness with the notion of 'hysteresis effect' -an effect that persists when its causes are removed.…”

Section: Theoretical Literaturementioning

confidence: 99%

The Impact of Currency Misalignment on Trade Balance of Emerging Market Economies

Mamun

Akça

Bal

2021

OMEE

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This study is an attempt to examine the impact of currency misalignment on the trade balance of emerging market economies from 1980 through 2016. It firstly measures the equilibrium RER and corresponding misalignment series of 21 EMEs separately adopting a single equation approach and then includes them in the trade regression together with undervaluation and overvaluation to estimate the dynamic relationship between the trade balance and real exchange rate misalignment employing the system generalized method of moment estimation approach. The study suggests that, being a composite series of undervaluation and overvaluation, higher real exchange rate misalignment helps recover trade imbalances. It also identifies that undervaluation improves trade balance, while overvaluation cuts it down. The study identifies that the misalignment series of RER for most of the EMEs are substantially dominated by overvaluation episodes, and hence the opposing impact of undervaluation and currency misalignment on the trade balance of EMEs is not surprising. From the policy perspective, competitiveness achieved through currency movements helps emerging market economies not only to improve trade balance but also to withstand vulnerability that arises from huge external borrowings creating a strong external payment position.

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The Effects of Competitiveness on Trade Balance: The Case of Southern Europe

Cited by 5 publications

References 26 publications

Exchange rate volatility in the eurozone

Exchange rate volatility in the eurozone

The Effect of Foreign Direct Investments on Trade Balance in Southeast Europe during the Period 2000–2018

The Impact of Currency Misalignment on Trade Balance of Emerging Market Economies

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