Case Study

PROGRAMME Master of Business Administration

MODULE Managerial Economics

YEAR One (1)

INTAKE July 2023

TOTAL MARKS 100 marks
THE ASYMMETRIC EFFECTS OF EXCHANGE RATE VOLATILITY ON INTERNATIONAL TRADE IN A TRANSITION
ECONOMY: THE CASE OF VIETNAM

This study investigates the Exchange Rate Volatility (ERV) and Trade Balance (TB) relationship by using monthly data over the
period January 2010 to December 2019 and a nonlinear regression model, namely the Nonlinear Autoregressive Distributed
Lag (NARDL) model, is employed. We hypothesize that ERV negatively influences Vietnam’s TB due to higher costs for risk-
averse traders. This study contributes to the literature as follows. First, while most studies in this field explore the symmetric
impact of ERV on TB, our analysis focusses on the asymmetric effects of ERV on TB. Second, Vietnam is a nice case to
test our hypothesis because Vietnam’s economy has been in a transitional period with a growing integration with the world
economy. We empirically test our hypothesis using time-series data and find that a positive change in ERV in the short-run has
a significantly negative impact on TB. However, over a longer horizon, ERV has a significantly positive effect on Vietnam’s TB.
Moreover, the Error Correction Model (ECM) indicates that 92.38% of disequilibria in the short-run converges to the long-run
equilibrium within one month. The key implication derived from this finding is that government intervention with respect to
exchange rate in transitional economies is needed by pursuing a stable exchange rate policy to sustainably improve the
TB.

Source: Truong, L., Le, H. H. N. and Vo, D. (2022) “THE ASYMMETRIC EFFECTS OF EXCHANGE RATE VOLATILITY ON
INTERNATIONAL TRADE IN A TRANSITION ECONOMY: THE CASE OF VIETNAM”, Buletin Ekonomi Moneter dan
Perbankan, 25(2), pp. 203-214. doi: 10.21098/bemp.v25i2.1636. Available at:
https://www.bmebbi.org/index.php/BEMP/article/view/1636
Answer ALL questions. All tables referred to below are found in the article used for this case study. See link in the abstract

FORMATIVE ASSESSMENT 1 [100 MARKS]

Question 1 (20 Marks)

“The impact of ERV on international trade has been widely studied and documented in the literature. However, findings
from these studies have not reached a consensus. Some studies report negative effects of ERV on international trade
while others find positive influences of ERV on international trade”. Much of the literature mentioned in the case study is older
(from the 2000s). Since there is no consensus, critique the latest literature on the impact of ERV on international trade for the
period 2019 to 2022.

Question 2 (20 Marks)

Analyse Table 1, Figure 1 and Figure 2, with regards to their implications for Vietnam’s economic performance.

Question 3 (20 Marks)

Interpret the results from Tables 5 and 6 (short and long run coefficients), to show what they mean for Vietnam’s trade
balance.

Question 4 (20 Marks)

Assess Vietnam’s overall economic performance during the COVID 19 pandemic and comment on the effectiveness of
measures taken by their government to stabilise the economy.

Question 5 (20 Marks)

Vietnam’s economy is affected by the high levels of Exchange Rate Volatility. Propose measures to stabilise the country’s
exchange rate regime and comment on their suitability (advantages and disadvantages).
END