The External Exchange Rate Volatility Influence on The Trade Flows: Evidence from Nonlinear ARDL Model


  • Ennadifi Imane Interdisciplinary Research Laboratory in Economics, Finance and Management of Organizations (LIREFMO), Sidi Mohamed Ben Abdellah University, Faculty of Law, Economics and Social Sciences, FEZ, FEZ MEKNES, Morocco, Author
  • Bisharat Hussain Chang Department of Business Administration, Sukkur IBA University, Sukkur, Sindh, Pakistan Author
  • Tarek Abbas Elsherazy University of Strathclyde, Glasgow, 16 Richmond St, Glasgow G1 1XQ, UK Author
  • Wing-Keung Wong Department of Finance, Fintech & Blockchain Research Center, and Big Data Research Center, Asia University, Taiwan. Department of Medical Research, China Medical University Hospital Department of Economics and Finance, The Hang Seng University of Hong Kong Corresponding Author
  • Mohammed Ahmar Uddin Department of Finance and Economics College of Commerce and Business Administration Dhofar University, Salalah, Dhofar, Oman Author



Third country exchange rate volatility (TCV), exports, China, Autoregressive Distributive Lag model, Nonlinear ARDL model


Purpose: Major trade partners of China, including Germany, Korea, the United Kingdom, the Netherlands, Malaysia, and Mexico, are examined in the research to see how currency exchange rate variations affect everything for Germany, Korea, the United Kingdom, the Netherlands, Malaysia, and Mexico. Our study also extends the existing literature by investigating the influence of external instability on Chinese exports to the US.

Study design/methodology/approach: To conduct this study's analysis, we apply the bounds test technique to the co-integration and error correction model to examine the asymmetric influence of third-country exchange rate volatility on trade flows of China in the short-run and long-run effect through measuring with two approaches, ARDL and NARDL on bilateral trade among Korea, Germany, Netherlands, United Kingdom, Malaysia, and Mexico. 

Findings: The investigation found that third-country exchange rate (China/USD) volatility has a varying influence on China's exports to different countries, with short-term asymmetrical effects observed in Korea, Germany, the United Kingdom, and Malaysia. In the long run, only Korea and the United Kingdom show an asymmetric effect on China's exports. These findings highlight the need to consider the impact of significant fluctuations in third-country exchange rate volatility before making relevant policies or decisions.

Originality/value: As far as we know, this is the first paper in the literature that employs quantitative models, analyzes the empirical data, and provides various insights which are helpful in the decision-making process concerning export strategies, exchange rates, and international trade.


Aftab, M., Hussain, Z., Ahmed, I., & Ahmed, S. (2012). Impact of exchange rate volatility on exports: a case study of Pakistan. Journal of Basic and Applied Scientific Research, 2(2), 1616-1622.

Ali, W., Gohar, R., Chang, B. H., & Wong, W. K. (2022). Revisiting the impacts of globalization, renewable energy consumption, and economic growth on environmental quality in South Asia. Advances in Decision Sciences, 26(3), 78-98.

Arize, A. C., Osang, T., & Slottje, D. J. (2008). Exchange-rate volatility in Latin America and its impact on foreign trade. International Review of Economics & Finance, 17(1), 33-44.

Bahmani-Oskooee, M., & Aftab, M. (2017). On the asymmetric effects of exchange rate volatility on trade flows: New evidence from US-Malaysia trade at the industry level. Economic Modelling, 63, 86-103.

Bahmani-Oskooee, M., & Xu, J. (2012). Impact of exchange rate volatility on commodity trade between US and China: is there a third country effect. Journal of Economics and Finance, 36, 555-586.

Baek, J. S. (2014). Exchange rate volatility and Korean exports to China. Journal of the Korean Economy, 15(1), 67-84.

Broll, U., & Eckwert, B. (1999). The costs of hedging risks arising from foreign currency debt. Journal of International Money and Finance, 18(2), 151-167.

Chang, B. H., Gohar, R., Derindag, O. F., & Uche, E. (2022a). COVID-19, lockdown measures and their impact on food and healthcare prices: empirical evidence using a dynamic ARDL model. Journal of Economic Studies, (ahead-of-print).

Chang, B. H., Derindag, O. F., Hacievliyagil, N., & Canakci, M. (2022b). Exchange rate response to economic policy uncertainty: evidence beyond asymmetry. Humanities and Social Sciences Communications, 9(1), 1-14.

Chang, B. H., and Rajput, S. K. O. (2018). Do the changes in macroeconomic variables have a symmetric or asymmetric effect on stock prices? Evidence from Pakistan. South Asian Journal of Business Studies, 7(3), 312-331.

Chang, B. H., Meo, M. S., Syed, Q. R., & Abro, Z. (2019a). Dynamic analysis of the relationship between stock prices and macroeconomic variables. South Asian Journal of Business Studies, 8(3), 229-245.

Chang, B. H., Rajput, S. K. O., and Bhutto, N. A. (2020a). The asymmetric effect of extreme changes in the exchange rate volatility on the US imports: Evidence from multiple threshold nonlinear ARDL model. Studies in economics and finance

Chang, B. H., Sharif, A., Aman, A., Suki, N. M., Salman, A., and Khan, S. A. R. (2020b). The asymmetric effects of oil price on sectoral Islamic stocks: New evidence from quantile-on-quantile regression approach. Resources Policy, 65, 101571.

Chang, B. H., Rajput, S. K. O., Ahmed, P., & Hayat, Z. (2020c). Does Gold Act as a Hedge or a Safe Haven? Evidence from Pakistan. The Pakistan Development Review, 59(1), 69-80.

Chang, B. H. (2020). Oil prices and E7 stock prices: an asymmetric evidence using multiple threshold nonlinear ARDL model. Environmental Science and Pollution Research, 1-12.

Chang, B. H., Rajput, S. K. O., & Bhutto, N. A. (2019b). Impact of exchange rate volatility on the US exports: a new evidence from multiple threshold nonlinear ARDL model. Journal of International Commerce, Economics and Policy, 10(02), 1950009.

Chang, B. H., Rajput, S. K. O., and Ghumro, N. H. (2018). Asymmetric impact of exchange rate changes on the trade balance: Does global financial crisis matter? Annals of Financial Economics, 1850015.

Chiang, T. C., Qiao, Z., & Wong, W. K. (2010). New evidence on the relation between return volatility and trading volume. Journal of Forecasting, 29(5), 502-515.

Cui, M., Wong, W. K., Wisetsri, W., Mabrouk, F., Muda, I., Li, Z., & Hassan, M. (2023). Do oil, gold and metallic price volatilities prove gold as a safe haven during COVID-19 pandemic? Novel evidence from COVID-19 data. Resources policy, 80, 103133.

Cushman, D. O. (1986). Has exchange risk depressed international trade? The impact of third-country exchange risk. Journal of international Money and Finance, 5(3), 361-379.

Clark, P. B. (1973). Uncertainty, exchange risk, and the level of international trade. Economic Inquiry, 11(3), 302-313.

Chi, J., & Chang, C. (2016). Exchange rate volatility and Taiwan's exports to China: A dynamic relationship. China Economic Review, 38, 73-85.

Dash, S., Parida, P., Sahu, G., & Khalaf, O. I. (2023). Artificial Intelligence Models for Blockchain-Based Intelligent Networks Systems: Concepts, Methodologies, Tools, and Applications. In Handbook of Research on Quantum Computing for Smart Environments (pp. 343-363). IGI Global.

Derindag, O. F., Chang, B. H., Gohar, R., & Salman, A. (2022). Exchange Rate Effect on the Household Consumption in BRICST Countries: Evidence from MATNARDL Model. Journal of International Commerce, Economics and Policy, 2250010.

Derindag, O. F., Chang, B. H., Gohar, R., Wong, W. K., & Bhutto, N. A. (2023). Food prices response to global and national factors: Evidence beyond asymmetry. Cogent Economics & Finance, 11(1), 2187128.

Gohar, R., Bagadeem, S., Chang, B. H., & Zong, M. (2022a). Do The Income And Price Changes Affect Consumption In The Emerging 7 Countries? Empirical Evidence Using Quantile ARDL Model. Annals of Financial Economics, 17(04), 2250024.

Gohar, R., Bhatty, K., Osman, M., Wong, W. K., & Chang, B. H. (2022b). Oil prices and sectorial stock indices of Pakistan: Empirical evidence using bootstrap ARDL model. Advances in Decision Sciences, 26(4), 1-27.

Gohar, R., Salman, A., Uche, E., Derindag, O. F., & Chang, B. H. (2023). Does US infectious disease equity market volatility index predict G7 stock returns? Evidence beyond symmetry. Annals of Financial Economics, 18(02), 2250028.

Gohar, R., Chang, B. H., Derindag, O. F., & Abro, Z. (2022c) Nexus between Consumption, Income, and Price Changes: Asymmetric Evidence from NARDL Model. ETIKONOMI, 21(2), 213-228.

Gohar, R., Osman, M., Uche, E., Auxilia, P. M., & Chang, B. H. (2022d). The economic policy uncertainty extreme dynamics and its effect on the exchange rate. Global Economy Journal, 22(03), 2350006.

Hashmi, S. M., & Chang, B. H. (2021) Asymmetric effect of macroeconomic variables on the emerging stock indices: A quantile ARDL approach. International Journal of Finance & Economics.

Hashmi, S. M., Chang, B. H., & Shahbaz, M. (2021b). Asymmetric effect of exchange rate volatility on India's cross‐border trade: Evidence from global financial crisis and multiple threshold nonlinear autoregressive distributed lag model. Australian Economic Papers, 60(1), 64-97.

Hashmi, S.M., Chang, B.H. and Rong, L. (2021b). Asymmetric effect of COVID-19 pandemic on E7 stock indices: Evidence from quantile-on-quantile regression approach. Research in International Business and Finance, 58, p.101485.

Hashmi, S. M., Chang, B. H., Huang, L., & Uche, E. (2022). Revisiting the relationship between oil prices, exchange rate, and stock prices: An application of quantile ARDL model. Resources Policy, 75, 102543.

Mordecki, G., & Miranda, R. (2019). Real exchange rate volatility and exports: A study for four selected commodity exporting countries. Panoeconomicus, 66(4), 411-437.

Maydybura, A., Gohar, R., Salman, A., Wong, W. K., & Chang, B. H. (2022). The Asymmetric Effect of the Extreme Changes in the Economic Policy Uncertainty on the Exchange Rates: Evidence from Emerging Seven Countries. Annals of Financial Economics, 2250031.

Noman, M., Maydybura, A., Channa, K. A., Wong, W. K., & Chang, B. H. (2023). Impact of cashless bank payments on economic growth: Evidence from G7 countries. Advances in Decision Sciences, 27(1), 1-22.

Nishimura, Y., & Hirayama, K. (2013). Exchange rate volatility and trade flows: Evidence from China and Japan. China Economic Review, 27, 162-173.

Obstfeld, M., & Rogoff, K. (1998). Risk and exchange rates. NBER Working Paper, (6694).

am, K., Liu, T., & Wong, W. K. (2010). A pseudo-Bayesian model in financial decision making with implications to market volatility, under-and overreaction. European Journal of Operational Research, 203(1), 166-175.

Lv, Z. H., Chu, A. M. Y., Wong, W. K., & Chiang, T. C. (2021). The maximum-return-and-minimum-volatility effect: Evidence from including both Health Care and Treasure-Bill in the portfolio. Risk Management, 23(1), 97-122.

Peng, B., Chang, B. H., Yang, L., & Zhu, C. (2022). Exchange rate and energy demand in G7 countries: Fresh insights from Quantile ARDL model. Energy Strategy Reviews, 44, 100986.

Pesaran, M. H., Shin, Y., & Smith, R. J. (2001). Bounds testing approaches to the analysis of level relationships. Journal of Applied Econometrics, 16(3), 289-326.

Pino, G., Felice, G., & Guida, P. (2016). Exchange rate volatility and exports: new empirical evidence from selected European countries. International Journal of Economic Sciences, 5(1), 1-14.

Tang, J., Sriboonchitta, S., Ramos, V., & Wong, W. K. (2016). Modelling dependence between tourism demand and exchange rate using the copula-based GARCH model. Current Issues in Tourism, 19(9), 876-894.

Soleymani, A., Chua, S. Y., & Hamat, A. F. C. (2017). Exchange rate volatility and ASEAN-4’s trade flows: is there a third country effect?. International Economics and Economic Policy, 14, 91-117.

Saidu, M. A., Abdulsalam, R., & Lawal, A. I. (2013). Impact of exchange rate volatility on Nigeria's export. IOSR Journal of Humanities and Social Science, 11(6), 39-45.

Serenis, D., & Tsounis, N. (2013). The impact of exchange rate volatility on trade flows: New evidence from selected EU countries. International Journal of Economics and Financial Issues, 3(1), 214-225.

Sharma, C., & Pal, D. (2018). Exchange rate volatility and India's cross-border trade: A pooled mean group and nonlinear cointegrationcointegration approach. Economic Modelling, 74, 230-246.

Shin, Y., Yu, B., & Greenwood-Nimmo, M. (2014). Modelling asymmetric cointegrationcointegration and dynamic multipliers in a nonlinear ARDL framework. Festschrift in honor of Peter Schmidt: Econometric methods and applications, 281-314.

Syed, Q. R., Malik, W. S., & Chang, B. H. (2019). Volatility Spillover Effect of Federal Reserve’S Balance Sheet On The Financial And Goods Markets Of Indo-Pak Region. Annals of Financial Economics, 14(03), 1950015.

Uche, E., Chang, B. H., & Effiom, L. (2022a) Household consumption and exchange rate extreme dynamics: Multiple asymmetric threshold nonlinear autoregressive distributed lag model perspective. International Journal of Finance & Economics.

Uche, E., Chang, B. H., & Gohar, R. (2022b). Consumption optimization in G7 countries: Evidence of heterogeneous asymmetry in income and price differentials. Journal of International Commerce, Economics and Policy, 13(1), 2250002.

Umaru, A., Sa'idu, B. M., & Musa, S. (2013). An empirical analysis of exchange rate volatility on export trade in a developing economy. Journal of emerging trends in economics and management sciences, 4(1), 42-53.

Verheyen, F. (2013). Exchange rate pass-through, nonlinear adjustment and inflation: empirical evidence from a highly inflationary country. Applied Economics, 45(29), 4121-4132.

Viaene, J. M., & De Vries, C. G. (1992). International trade and exchange rate volatility. European Economic Review, 36(6), 1311-1321.

Wang, X., Chang, B. H., Uche, E., & Zhao, Q. (2022). The asymmetric effect of income and price changes on the consumption expenditures: evidence from G7 countries using nonlinear bounds testing approach. Portuguese Economic Journal, 1-19.

Xue, X., Poonia, M., Abdulsahib, G. M., Bajaj, R. K., Khalaf, O. I., Dhumras, H., & Shukla, V. (2023a). On Cohesive Fuzzy Sets, Operations and Properties with Applications in Electromagnetic Signals and Solar Activities. Symmetry, 15(3), 595.

Xue, X., Marappan, R., Raju, S. K., Raghavan, R., Rajan, R., Khalaf, O. I., & Abdulsahib, G. M. (2023b). Modelling and Analysis of Hybrid Transformation for Lossless Big Medical Image Compression. Bioengineering, 10(3), 333.

Xue, X., Chinnaperumal, S., Abdulsahib, G. M., Manyam, R. R., Marappan, R., Raju, S. K., & Khalaf, O. I. (2023c). Design and Analysis of a Deep Learning Ensemble Framework Model for the Detection of COVID-19 and Pneumonia Using Large-Scale CT Scan and X-ray Image Datasets. Bioengineering, 10(3), 363.

Xue, X., Shanmugam, R., Palanisamy, S., Khalaf, O. I., Selvaraj, D., & Abdulsahib, G. M. (2023). A hybrid cross layer with harris-hawk-optimization-based efficient routing for wireless sensor networks. Symmetry, 15(2), 438.



How to Cite

Imane, E., Chang, B. H., Elsherazy, T. A., Wong, W.-K., & Uddin, M. A. (2023). The External Exchange Rate Volatility Influence on The Trade Flows: Evidence from Nonlinear ARDL Model. Advances in Decision Sciences, 27(2), 75-98.