Please use this identifier to cite or link to this item: http://hdl.handle.net/10419/163184
Authors: 
Sokolova, Maria V.
Year of Publication: 
2017
Series/Report no.: 
ADBI Working Paper Series 684
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 confirm 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 framework 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 effects and trade balance adjustment.
Subjects: 
trade balance
regional trade agreements
competitive depreciation
economic integration
terms-of-trade
JEL: 
F10
F13
F14
F15
F40
F41
F45
Creative Commons License: 
https://creativecommons.org/licenses/by-nc-nd/3.0/igo/
Document Type: 
Working Paper

Files in This Item:
File
Size
736.09 kB





Items in EconStor are protected by copyright, with all rights reserved, unless otherwise indicated.