New empirical assessment of export price competitiveness: Industry-specific real effective exchange rates in Asia

• Published in: The North American journal of economics and finance Vol. 54; p. 101262
• Main Authors: Sato, Kiyotaka, Shimizu, Junko, Shrestha, Nagendra, Zhang, Shajuan
• Format: Journal Article
• Language: English
• Published: Elsevier Inc 01.11.2020
• Subjects: Asia; Export price competitiveness; global value chain (GVC); Heterogeneous cross-sectional dependence; Industry-specific real effective exchange rate (I-REER); Panel auto-regressive distributed lag (ARDL) model; Industry-specific real effective exchange rate (I-REER); Export price competitiveness; F31; Asia; F33; global value chain (GVC); Panel auto-regressive distributed lag (ARDL) model; Heterogeneous cross-sectional dependence; F15
• ISSN: 1062-9408; 1879-0860
• DOI: 10.1016/j.najef.2020.101262

This study constructed the industry-specific real effective exchange rate (I-REER) as a new measure of export competitiveness by industry. By aggregating I-REERs to a country-level I-REER for nine Asian economies, we assess the effect of REER appreciation on real exports by employing both static common-correlated effects (CCE) estimator and cross-sectionally augmented distributed lag (CS-DL) estimator (a dynamic version of the CCE estimator) to control for heterogeneity in the impact of unobservable common factors. The degree of REER’s negative effect is found to have declined in recent years, which may imply that growing global value chains (GVCs) tend to mitigate the negative effect of REER appreciation on exports. As is well known that Asia is characterized as active regional trade and investment through GVCs, further regional integration would make Asian economies have less concern about policy coordination for regional exchange rate stability in Asia.