VDF-Tokyo the 15th Workshop (15 Jan 2005, 14:00-)
Quantitative Assessment of
Sensitivity to Exchange Rate Fluctuations
Graduate School of Economics,
Shiga University, Japan
The standard theoretical models rule that for small open economy, an exchange rate appreciation would cause decreases in exports and encourage imports. Contrary to the predictions of them, Vietnam is an unusual case study that has experienced an appreciating currency in real terms in 1990s, with respect to sustained export growth. This interesting episode address important questions to what extent the real exchange rates has a significantly sensitive impact on trade performances of Vietnam, and if it has, what are possible explanations for this surprising relations of Vietnamese case?
This paper attempted to respond these questions by conducting exhaustively quantitative analysis of panel data of 20 manufacturing sectors and annual time series of 1991-2000, in terms of bilateral trade between Vietnam and 18 leading traded partners, within the scope of possibly treated available data. Moreover, by using concentration ratio that is outstanding nature of Vietnamese industries, the paper also briefly investigated the extent to which different concentration level- a representative indicator of imperfect competitiveness- would influence the sensitivity to Vietnamese dong fluctuations. Most importantly, the paper highlighted the fact that increasing external trade of goods during the period of currency appreciation could be attributed to more extensive using of foreign parts in the production of exportable goods.
The empirical estimates suggested that the sensitivity coefficients to exchange rate changes vary across sectors. While an appreciation of Vietnamese dong should increase imports for almost sectors (only 3 in 18 cases are not significant), it decreased export toward the trading partners in the case of only 4 sectors over total 17 sectors. The paper also found that the concentration ratio has influenced significantly to behavior of export suppliers, but not to that of import demanders.
As a vigorous result, the paper found very important role played by imported input share in generating the response of export volume to exchange rate fluctuations: the coefficients are significantly remarkable high. This result indicated that the crucial resource in maintaining export competitiveness has been provided by having a high imported input. Equivalently, an appreciation of Vietnamese dong in 1990s induced by exchange rate policy does not mean Vietnam has loss export price competitiveness.
The finding of this
paper have important implication for further studies such as trade goods
price effect of Vietnamese dong fluctuations, causal effect of traded good
price and the behavior of reducing profit make-up of exportable goodsf
producer to evaluate completely the relationship of Vietnamfs export and
movement in the currency value.
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