Asymmetric Effects of Exchange Rate Volatility on Taiwan-China Trade: A Non-Linear ARDL Analysis of 20 Industries

Abstract This study investigates the long-run and short-run effects of exchange rate volatility on Taiwan's exports to and imports from China across 20 industries, employing a non-linear autoregressive distributed lag (NARDL) approach. The analysis covers the period from January 2004 to December 2022 and highlights industry-specific sensitivities and asymmetric impacts of exchange rate fluctuations. Our findings reveal the critical role of exchange rate volatility in shaping export and import performance across industries, with both positive and negative shocks exerting significant short-run and long-run effects. Asymmetric impacts of exchange rate fluctuations affect 87.96% of Taiwan's total exports to China in the long run and 72.11% in the short run. In contrast, the asymmetric impacts on imports influence 77.12% of Taiwan's total imports from China in the long run and 13.21% in the short run, demonstrating varying sensitivity across industries. These findings accentuate the necessity for industry-tailored trade policies and strategic considerations to better manage the risks and opportunities presented by exchange rate volatility in cross-strait trade. JEL classification numbers: F14, F31, C22. Keywords: Exchange rate volatility, Taiwan-China trade, Non-linear ARDL, Asymmetric effects.