The Asymmetric Effects of Exchange Rate Changes on the Trade Balance of Singapore
-
Mohsen Bahmani-Oskooee
and
Hanafiah Harvey
Abstract
Previous studies that tested the short-run and long-run effects of exchange rate changes on trade balances assumed that the effects are symmetric. The more recent research direction has now changed to investigating the possibility of asymmetric effects. In this paper, we assess the short-run and long-run effects of exchange rate changes on the bilateral trade balances of Singapore with her 11 partners. By applying the nonlinear ARDL approach, which separates appreciations from depreciations, we find that exchange rate changes have short-run asymmetric effects in most models. The short-run effects, however, lasted into the long run in a few models. In the long run, while depreciation improves Singapore’s trade balance with the U.S., it hurts it with Malaysia and China. These three partners account for almost 50 % of Singapore’s trade.
Appendix. Data definition and sources
Quarterly data over the period 1975QI-2015QII are used to carry out the empirical analysis. They come from the following sources:
Direction of Trade Statistics by the IMF.
International Financial statistics (IFS)
Monetary Authority of Singapore (Central Bank of Singapore)
Due to the unavailability of data on some variables, however, the period was restricted to 2003–2015 for Indonesia, 1981–2015 for the Philippines, 1993–2015 for Thailand, 1981–2015 for Hong Kong, and 1996–2015 for China.
Variables
TBi = Singapore trade balance with partner i is defined as Singapore’s imports from partner i over her exports to partner i. The data come from source a.
YSG = Measure of Singapore’s income. It is proxied by index of real GDP. The data come from source b.
Yi = Trading partner i’s income. This is also proxied by the index of real GDP in country i and the data come from source b.
REXi = The real bilateral exchange rate of the Singapore dollar against the currency of partner i. It is defined as REXi = (PSG * NEXi/Pi) where NEXi is the nominal exchange rate defined as number of units of partner i’s currency per Singapore dollar, PSG is the price level in Singapore. (measured by CPI) and Pi is the price level in country i (also measured by CPI). Thus, a decline in REX reflects a real depreciation of the Singapore dollar. All the nominal exchange rates and price levels data come from source b.
Singapore’s Trade Shares with Her Trading Partners in the Last Quarter of 2015 (Source a)
| Trading Partner | Exports | Imports | Trade Share (%) |
|---|---|---|---|
| Australia | 2,828,248,252.91 | 707,746,859.76 | 2.3% |
| China | 12,509,798,749.31 | 11,007,951,521.13 | 15.1 % |
| Hong Kong | 9,921,233,717.03 | 762,258,721.41 | 6.8% |
| Indonesia | 6,515,810,115.26 | 3,358,497,039.99 | 6.3% |
| Japan | 3,988,977,708.47 | 4,571,484,171.38 | 5.5 % |
| Malaysia | 9,029,167,629.95 | 7,907,313,270.98 | 10.9 % |
| Philippines | 1,686,891,208.33 | 1,158,149,357.89 | 1.8% |
| South Korea | 3,277,919,772.55 | 4,324,449,285.77 | 4.9 % |
| Thailand | 3,358,346,598.40 | 1,773,515,734.28 | 3.3 % |
| United Kingdom | 966,455,372.44 | 1,464,436,873.18 | 1.6 % |
| United States | 5,906,540,026.70 | 8,252,477,901.30 | 9.1 % |
| World | 84,637,867,323.75 | 71,442,649,626.07 | 156,080,516,949.82 |
Trade share is defined as the sum of the exports and imports of each partner as a % of the sum of Singapore’s total exports and imports.
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- The Asymmetric Effects of Exchange Rate Changes on the Trade Balance of Singapore
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Articles in the same Issue
- Analyzing Trade Growth Effects of Deviations from Long-run Economic Growth
- The Asymmetric Effects of Exchange Rate Changes on the Trade Balance of Singapore
- Economic Freedom and the Informal Economy
- Sustainability of Current Account Deficits in the OECD Countries: Evidence from Panel Data Estimators
- The Anatomy of Trade Deflection
- An Empirical Analysis of Aggregate Import Demand Function for India
- Russia and the Use of Trade Policy: Concentration with Soviet Successor States
- The Comparative Advantages in the Services Sector of Developing Economies
