The Asymmetric Impacts of Exchange Rate Volatility on Trade Between Korea and Vietnam

Purpose – In past studies, exchange volatility was assumed to have a symmetric effect on trade, irrespective of exports and imports. In practice, however, the symmetry assumption is not credible. This is because responses to exchange rate uncertainty differ among countries or companies. Thus, this study examines the asymmetric effects of exchange rate volatility on exports and imports as well as in the short- and long terms. Design/Methodology/Approach – To investigate the asymmetric impact of exchange rate volatility on Korea’s trade with Vietnam, the nonlinear autoregressive distributed lag (NARDL) method was applied to export and import data disaggregated by 25 commodities for the period of January 2000 to December 2020. Findings – The results show that the ups and downs of exchange rate volatility have an asymmetric impact on some, though not all, types of Korea's commodities exported to and imported from Vietnam. In addition, asymmetries in exchange rate volatility seem more likely viewed as a short-tern phenomenon rather than a long-term period for Korea’s bilateral trade with Vietnam over the past two decades. Research Implications – Monetary authorities in Korea and Vietnam need to consider the short-run movement in the VND/KRW exchange rate as one of the main factors for determining bilateral trade flows.