Analysis on ƒÀ and ƒÐ Convergences of East Asian Currencies

This paper investigates recent diverging trends among East Asian currencies as well as recent movements of the weighted average value of East Asian currencies (Asian Monetary Unit: AMU) and deviations (AMU Deviation Indicators) of the East Asian currencies from the average values by ƒÀ and ƒÐ convergence methods. Our empirical analysis shows that linkages with the US dollar have been weakening since 2001 or 2002 for some of the East Asian countries. On the other hand, the monetary authority of China continues stabilizing the exchange rate of the Chinese yuan against the US dollar even though it announced its adoption of a currency basket system. It is found that the weighted average of East Asian currencies has been appreciating against the US dollar while depreciating against the currency basket of the US dollar and the euro until the global financial crisis in 2008. Also, the analytical results on ƒÀ and ƒÐ Convergences show that deviations among the East Asian currencies have been widening@in recent years, reflecting the fact that these countriesf monetary authorities are adopting a variety of exchange rate systems. In other words, a coordination failure in adopting exchange rate systems among these monetary authorities increases volatility and misalignment of intra-regional exchange rates in East Asia.

Gravity with multiple tariff schemes

This study contributes to the literature on gravity analysis by explicitly incorporating both most favored nation (MFN) rates and regional trade agreement (RTA) rates. Our gravity equation considers the fact that all exporters do not necessarily utilize RTA schemes, even when exporting to their RTA partners. We apply the tariff line–level data on worldwide trade to this gravity equation. As a result, we find a significantly negative coefficient for the (log) ratio of RTA rates to MFN rates. From the quantitative point of view, we show that in the first year of the Japan–Australia Economic Partnership (i.e., 2015), exports from Australia to Japan are expected to increase by 6% compared with the exports in 2014. Furthermore, it is shown that, based on the subsequent reduction in RTA rates, the magnitude of the trade-creation effect through tariff reductions gradually rises over time

Widening Deviation among East Asian Currencies

This paper investigates recent diverging trends among East Asian currencies as well as recent movements of the weighted average value of East Asian currencies (Asian Monetary Unit: AMU) and deviations (AMU Deviation Indicators) of the East Asian currencies from the average values. Our empirical analysis shows that linkages with the US dollar have been weakening since 2001 or 2002 for some of the East Asian countries. On the other hand, the monetary authority of China continues stabilizing the exchange rate of the Chinese yuan against the US dollar even though it announced its adoption of a currency basket system. It is found that the weighted average of East Asian currencies has been appreciating against the US dollar in recent years while depreciating against the currency basket of the US dollar and the euro. Also, deviations among the East Asian currencies have been widening in recent years, reflecting the fact that these countries' monetary authorities are adopting a variety of exchange rate systems. In other words, a coordination failure in adopting exchange rate systems among these monetary authorities increases volatility and misalignment of intra-regional exchange rates in East Asia.

Analysis on β and σ Convergences of East Asian Currencies

This paper focuses on recent events which include the RMB reform in China and the global financial crisis to investigate statistically recent diverging trends among East Asian currencies. For the purpose, their weighted average value (Asian Monetary Unit: AMU) and their deviations (AMU Deviation Indicators) from benchmark levels are used to analyze both β and σ convergences of East Asian currencies. Our analytical results show that the monetary authority of China has still kept stabilizing the exchange rate of the Chinese yuan against only the US dollar even though it announced its adoption of a managed floating exchange rate system with reference to a currency. Analytical results on β and σ convergences show that deviations among the East Asian currencies have been diverging in recent years, especially after 2005. The widening deviations reflect not the RMB reform but recent international capital flows and the global financial crisis. In addition, it is important as its background that the monetary authorities of the countries are adopting a variety of exchange rate systems. In other words, a coordination failure in adopting exchange rate systems among these monetary authorities increases volatility and misalignment of intra-regional exchange rates in East Asia.

Firm-level utilization rates of regional trade agreements : importers\u27 perspective

While previous theoretical studies have examined exporters\u27 choice of tariff schemes without considering explicit heterogeneity of importers, an empirical analysis on regional trade agreement (RTA) utilization is, in general, possible by employing trade data covering the importers\u27 side. To better link the empirical analysis with a theoretical model, this study develops a model that sheds light on the role of both importers\u27 and exporters\u27 characteristics in RTA utilization. The model enables us to replicate stylized facts concerning importers\u27 RTA utilization. Based on this model, we derive some propositions on the determinants of RTA utilization rates (i.e., share of imports under RTA schemes out of total imports) at an import firm-product level. Finally, we found that these theoretical predictions are supported by highly detailed import data in Thailand from Australia from 2007 to 2009

FTA in international finance : impacts of exchange rates on FTA utilization

This paper investigates how exchange rates affect the utilization of a free trade agreement (FTA) scheme in trading. Changes in exchange rates affect FTA utilization by two ways. The first way is by changing the excess profits gained by utilizing the FTA scheme, and the second way is by promoting the compliance of rules of origin. Our theoretical models predict that the depreciation of exporters\u27 currency against that of importers enhances the likelihood of FTA utilization through those two channels. Furthermore, our empirical analysis, which is based on rich tariff-line-level data on the utilization of FTA schemes in Korea\u27s imports from ASEAN countries, supports the theoretical prediction. We also show that the effects are smaller for more differentiated products

Effect of import time on export patterns

This study examines how the importing process time affects export patterns at an establishment level. We first theoretically discuss the effects of import time on not only exports but also export shipment frequency and exports per shipment. Then, we derive some propositions regarding those effects. Next, by employing highly detailed customs data for Thailand from 2007 to 2011, we empirically investigate those propositions. In this study, the time to import is measured at an establishment level using the difference between the dates on which import shipments arrived in ports and then were released from the container yard. Our main finding is that a longer time reduces total exports, particularly through decreasing export frequency. Significantly negative effects on exports per shipment appear in some specific cases. A longer time to import also reduces total imports, particularly through decreasing import frequency

Tariff scheme choice

This study examines the determinants of the probability that exporters choose between a most-favored nation (MFN) scheme and multiple regional trade agreement (RTA) schemes. It estimates a nested logit model using a transaction-level import data for Thailand from other ASEAN countries in 2014. The study finds that RTA schemes are more likely to be chosen rather than the MFN scheme in case of a larger transaction value. Among RTA schemes, the one with less restrictive rules of origin or lower RTA tariff rates is more likely to be chosen. In addition to some results of simulation analyses, this study provides some quantitative interpretation of our estimation results

Tariff rates in gravity

In investigations on the role of tariff rates in the gravity equation, applied tariff rates (i.e., the lowest available rates) are often introduced. However, not all exporters use the lowest available rates, especially when some cost is incurred in using those rates. This implies that it is not prudent to introduce only the applied tariffs into the gravity equation. Accordingly, this study discusses how to deal with tariff variables in the gravity estimation. Specifically, it empirically demonstrates that when multiple tariff schemes are available, omitting tariffs in either scheme creates a remarkable bias in the estimates. When we control for other tariffs by explicit variables or fixed effects defined at an appropriate level (e.g., importer-product-year fixed effects), the use of applied tariffs can be justified

Currency Invoicing and Foreign Exchange Risk Management: A Case Study of Japanese Firms (Japanese)

This paper, through interviews with 12 major Japanese firms, has revealed new "stylized facts" of the Japanese firms' strategy of currency invoicing, foreign exchange risk managements, and price-setting in recent years. It is also investigated whether these stylized facts are consistent with what has been theoretically and empirically found in the literature. First, the amendment of Foreign Exchange and Foreign Trade Control Law in 1998 had significant impact on the foreign exchange risk management of Japanese firms. Electronics and automobile companies pursue the most efficient settlements of trade transactions under the amended law, and currency invoicing is one of the most important strategic variables to optimize their foreign exchange risk managements. Second, as intra-firm trade has been increasingly a major part of their external trade, Japanese electronics and automobile companies have a strong tendency to choose local currency invoicing in exports to advanced countries, while U.S. dollar invoicing has been increasing when exporting to East Asian countries. Such an invoicing strategy aims at stabilizing the local currency (or U.S. dollar) price of their exports in local markets, which conforms to the pricing-to-market (PTM) behavior discussed in the literature. Third, the recent increase in U.S. dollar invoicing in East Asia can be attributed to (i) U.S. dollar's dominant role of world financial and foreign exchange transactions, (ii) the importance of the U.S. markets as a final export destination, and (iii) the increasing intra-firm transactions as Japanese firms has established regional production networks. Fourth, the currency invoicing and price-setting strategies are affected by competitors in global markets where it is hard to pass-through exchange rate risks to importers due to the strong market competition. Since U.S. dollar invoicing is now dominant in the East Asian markets, not only Japanese parent companies but also local affiliates in East Asia will take exchange rate risks against the U.S. dollar if the dollar fluctuates unstably. As the intra-regional trade keeps growing, it will become more important for East Asian countries including Japan to stabilize the exchange rate not vis-a-vis the U.S. dollar but between the regional currencies. This aspect will have important implications for new strategy of optimal exchange rate risk management and, hence, establishing regional currency arrangements such as a common currency basket in East Asia.