Vietnam-China Trade and the Asymmetric Impact of Exchange Rates: A New Approach

Purpose - This study assesses the asymmetric effect of the real exchange rate on Vietnam’s exports (imports) to (from) China. Design/Methodology/Approach - The strategy included the following steps: (1) dividing the exchange rate into positive and negative partial sum series; (2) incorporating the Fourier function to accurately capture changes in the data structure; and (3) applying the Fourier nonlinear autoregressive distributed lag (FNARDL) model to estimate the coefficient magnitude of the positive and negative partial sum series and examine whether the exchange rate exerted an asymmetric effect. Furthermore, to minimize the aggregation bias problem, Vietnam’s export (import) data to (from) China were used instead of aggregate trade balance data. Findings - Fluctuations in the real exchange rate had a strong asymmetric effect on exports and imports in the long run. However, this impact appeared to be weaker in the short run. Research Implications - This study’s findings have profound implications for policymakers, who need to look upon the asymmetric relationship between real exchange rate fluctuations and trade flows to devise appropriate policies to promote trade in the long run.