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Impact of Exchange Rate Volatility on Trade Volume: Empirical Evidence from Brazil's Poultry Meat
Transcript of Impact of Exchange Rate Volatility on Trade Volume: Empirical Evidence from Brazil's Poultry Meat
Empirical evidence from the Brazilian poultry export sector Place your own picture
behind this frame! Double click to crop it if necessary (cc) photo by Metro Centric on Flickr (cc) photo by Franco Folini on Flickr (cc) photo by jimmyharris on Flickr (cc) photo by Metro Centric on Flickr positive or negative impact of volatility on trade? policymakers, scholars, business press interests Brazil's adoption of a floating/flexible exchange rate system in 1999 Hypothesis: an increase in the uncertainty of Brazil's exchange rate will lead to a fall in the country's level of poultry meat exports Literature Review (empirical) Literature Review (theoretical) Methodology Policy Implications Awokuse and Yuan (2006) and Langley et al. (2002) use US and Thailand's poultry exports, respectively
** Both found volatility had a positive impact on trade exports** Forecast:
an increase in Brazilian exchange rate volatility will lead to a positive impact on the country's poultry exports INAF 5400: Trade Policy Analysis
Dr. Yanling Wang Contribution No existing empirical studies on the impact of volatility on Brazil's poultry exports - Ethier (1973): negative impact
- Clark (1973): impact can be alleviated if there exists forward markets
- Baron (1976): forward markets may not be developed
- DeGrauwe (1988): risk-aversion increases trade
- Sercu (1992): export price >>> trade costs
- Sercu & Vanhulle (1992): value of exporting firms
- Broll & Eckwert (1999): value of trader's option to export
- Bahmani-Oskooee & Hergerty (2007): summarized past studies
most studies produced no statistically significant results
if significant, both positive and negative coefficients were found
the need to study disaggregate data over overall trade flows
- Gonzaga & Terra (1997): negative coefficients, but not statistically significant
- Aguirre et al. (2003): volatility significant in the long-run on manuf. goods - using a standard export demand equation
- 3 measures of exch. rate volatility
- two estimation techniques: fixed effect and random effect
**FE: takes into account time-variant factors (e.g. oil price shocks)
RE: takes into account time-invariant factors (e.g. distance between countries) - Xit: export volume
- Yit: importing country's income
- Pit: unit export price
- XRATit: exchange rate levels in for. curr. per Real
- Vit: exchange rate volatility
- OPENit: impact from trade policy reforms and/or other instit. factors Export Demand Equation Moving average of the standard deviation of the growth rate of the nominal exchange rate Abolute percentage change in exchange rate levels Variance of the "spot" exchange rate around its trend 3 Measures of Exchange Rate Volatility 4 Measures of Volatility Source: May (2007). Data - IMF's Int'l Financial Stats
- Food and Agriculture Organization's FAOSTAT and CountrySTAT
- UN COMTRADE Trends Poultry Meat Exports USD/Real Exchange Rate Volatility Source: www.brazilianchicken.com - belief that extreme volatility can harm int'l trade
- but must take into account other economic facts such as expectations, hedging instruments
- floating/flexible exchange rate systems do NOT equate to a reduction in incentives to trade
- important implications for developing countries
that rely on non-fully flexible exch. rate system to support export-led economic growth Agenda 1. Literature Review
7. Q & A
...one more thing preliminary stage of background research and data collecting Bibliography Aguirre, A., A. Ferreira and H. Notini. (2003). "The impact of exchange rate volatility on Brazilian manufactured exports," in Economica of Universidad Nacional de La Plata. Vol. LIII (1-2).
Awokuse, T.O. and Y. Yuan. (2006). "The impact of exchange rate volatility on US poultry exports," in Agribusiness. Vol. 22 (2).
Bahmani-Oskooee, M. and S. W. Hegerty. (2007). "Exchange rate volatility and trade flows: a review article," in Journal of Economics
Studies. Vol. 34 (3).
Baron, D. P. (1976). "Fluctuating exchange rates and the pricing of exports," in Economic Inquiry. Vol 14.
Broll, U. and B. Eckwert. (1999). "Exchange rate volatility and international trade," in Southern Economic Journal. Vol. 66 (1).
Clark, P.B. (1973). "Uncertainty, exchange risk, and the level of international trade," in Western Economic Journal. Vol. 6.
De Grauwe, P. (1987). "Exchange rate variability and the slowdown in growth of international trade," in IMF Staff
Papers. Vol. 35 (1).
Ethier, W. (1973). "International trade and the forward exchange market," in American Economic Review. Vol. 63 (3).
Hallahan, C. and S. V. Langley. (2002). "The effects of real exchange rate volatility on Thailiand's rice and poultry
exports," in Exchange Rate Volatility and Agricultural Trade. Concord: Captus Trade Inc.
May, J. B. (2007). "International financial volatility and commodity exports: Evidence from the Thai Agricultural Sector,"
in the Department of Economics of College of William and Mary. Working paper 65.
Secru, P. (1992). "Exchange risk, exposure, and the option to trade," in Journal of International Money and Finance.
Secru, P. and C. Vanhulle. (1992). "Exchange rate volatility, international trade, and the value of exporting firms," in
Journal of Banking and Finance. Vol. 16.
Source: IMF. Source: www.brazilianchicken.com Source: Aguirre et al. (2007). Source: Holland (2006). Source: Levy-Yeyati and Sturzenegger (2002). Source: www.brazilianchicken.com Source: IMF.