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

Ennadifi Imane; Bisharat Hussain Chang; Tarek Abbas Elsherazy; Wing-Keung Wong; Mohammed Ahmar Uddin

doi:10.47654/v27y2023i2p75-98

Authors

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

DOI:

https://doi.org/10.47654/v27y2023i2p75-98

Keywords:

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

Abstract

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.

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