Exchange Rates, International Trade and Growth: Re-Evaluation of Undervaluation
Sokolova, Maria V. | March 2017
Abstract
This paper shows that regional trade integration shifts the burden of the exchange rate adjustment towards the less integrated trading partners. Thus, they bear the cost of trade balance expansion, while competitive exchange rate moves vis- a-vis RTA trading partners result in no expansion or deterioration of the overall trade balance.
First, using the data on 138 countries since 1990 that have been envolved in regional trade integration through signing regional trade agreements (RTAs), this paper shows that upon a 10% depreciation towards non-RTA trading partners results in a 4.4% improvement of the aggregate trade balance. A similar competitive depreciation towards RTA trading partners has resulted on average 3.7% deterioration of the aggregate trade balance. Second, I con rm that RTA participation can act as a good proxy for trade integration, and test the results with alternative measures of trade balance. Third, I use a simple model frame- work based on the current account adjustments to put the empirical findings into the theoretical frame.
Altogether, this paper indicates that regional trade integration in the form of RTA should be taken into account in questions related to the competitive exchange rate e ects and trade balance adjustment.
Citation
Sokolova, Maria V.. 2017. Exchange Rates, International Trade and Growth: Re-Evaluation of Undervaluation. © Asian Development Bank Institute. http://hdl.handle.net/11540/7617.Keywords
Government Policy
Regional Organization
Regional Plans
Economic integration
Regional Development Bank
Preferential tariffs
International negotiation
Protectionist measures
Access to markets
Economic agreements
International trade law
Regional integration
Trade relations
Regionalism
Regional Economy
Regional Trading Arrangements
Regional Trade Integration
Regional Economic Integration
Regional Cooperation
Interregional Cooperation
Trade Disputes
Trade Barriers
Regional economics
Regional planning
Regional disparities
Interregionalism
Regional economic disparities
Regional economic blocs
Industrial arbitration
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