TITLE:
Exchange Rate Volatility, Bilateral Trade, and Investment in Association of Southeast Asian Nations from 2000 to 2021
AUTHORS:
Kiatnarong Wongsamee, Supakit Boonanegpat
KEYWORDS:
Regional Trade, ASEAN, Bilateral Investment, Bilateral Trade, Exchange Rate Volatility
JOURNAL NAME:
Open Journal of Business and Management,
Vol.12 No.5,
September
23,
2024
ABSTRACT: The purpose of the study was to investigate the relationship between exchange rate volatility and macroeconomic indicators of trade and investment between countries in the Association of Southeast Asian Nations (ASEAN) region. Data was collected from UNCTAD STAT, Refinitiv Eikon, World Bank, and the CEPII Gravity database for nine ASEAN countries (excluding Myanmar) (2000-2021). Additional data was added from the Chinn-Ito index of economic openness and OECD foreign direct investment restrictiveness index. A gravity model was constructed to investigate the effects of real exchange rate volatility on bilateral trade (net imports) and bilateral net inward foreign direct investment (FDI). Fixed-effects panel analysis was conducted in GRETL. The study is the only identified research on the macroeconomic effects of exchange rate volatility on bilateral macroeconomic relationships in ASEAN. It contributes to a mixed literature on the empirical effects of exchange rate volatility on macroeconomic indicators and bilateral macroeconomic relationships at the regional level. The study could not include Myanmar due to data unavailability. The time period was also limited due to data availability. The findings imply that the impact of exchange rate volatility on macroeconomic indicators is country-specific, with a variety of effects observed. Therefore, exchange rate volatility may act in concert with other factors, rather than on its own. Exchange rate volatility had significant negative effects on bilateral trade for five countries. Exchange rate volatility had significant negative effects on net inward FDI flows for seven countries.