Volatility of Exchange Rate and Foreign Trade in Asia

Abstract

The paper examines the empirical relationship between exchange rate and foreign trade in 12 Asian countries from 2013m1 to 2019m12. The Pedroni test, Pooled mean group method, and Dumitrescu-Hurlin test are employed to examine the relationship between variables. The findings give that most pairs variables between exchange rate and foreign trade are cointegration and correlation, except the pair of foreign trade and currency per USD, but it is adjusted to equilibrium significantly for the long-term. Moreover, we explore that the positive relationship between exchange rate and foreign trade. Although a few pairs of variables are uni- or non-directional causality, most cases are significant bi-directional causality. The intensity effect from exchange rate to foreign trade is larger than the opposite direction.