Exchange-rate risk and UK-China trade: evidence from 47 industries

Mohsen Bahmani-Oskooee (Center for Research on International Economics, University of Wisconsin-Milwaukee, Milwaukee, Wisconsin, USA)
Scott Hegerty (Department of Economics, Northeastern Illinois University, Chicago, Illinois, USA)
Ruixin Zhang (Department of Economics, University of Wisconsin-Milwaukee, Milwaukee, Wisconsin, USA)

Journal of Chinese Economic and Foreign Trade Studies

ISSN: 1754-4408

Publication date: 28 January 2014

Abstract

Purpose

Recent years have seen a rapid expansion of studies that examine the effects of exchange-rate risk on bilateral exports and imports for specific industries. Since the underlying theory is ambiguous, each case must be studied individually. This paper considers British trade with China, for 47 types of product, over the period from 1978 to 2010. Consistent with the underlying theory, cointegration analysis shows that most industries register no effect due to volatility in the long run, while some trade flows are reduced and a handful are even increased. An analysis of industry characteristics suggests that while the type of good might play little role on an industry's specific results, a product's trade share does. This is the case for UK imports of Chinese goods, perhaps because large Chinese exporters are able to successfully hedge against exchange-rate risk. The paper aims to discuss these issues.

Design/methodology/approach

The method is based on bounds testing approach to cointegration and error-correction modeling.

Findings

The paper arrives at two key conclusions. First, as has been shown previously for other country pairs, most industries demonstrate no long-run response to exchange-rate volatility. A fraction of industries are affected, and most of these effects are negative.

Research limitations/implications

This research pertains to the case of industry trade between the UK and China only.

Practical implications

The paper identifies industries that are affected by exchange rate uncertainty.

Originality/value

No study has looked at the impact of exchange rate uncertainty on the trade flows between China and the UK at commodity level.

Keywords

Citation

Bahmani-Oskooee, M., Hegerty, S. and Zhang, R. (2014), "Exchange-rate risk and UK-China trade: evidence from 47 industries", Journal of Chinese Economic and Foreign Trade Studies, Vol. 7 No. 1, pp. 2-17. https://doi.org/10.1108/JCEFTS-04-2013-0011

Download as .RIS

Publisher

:

Emerald Group Publishing Limited

Copyright © 2014, Emerald Group Publishing Limited

Please note you might not have access to this content

You may be able to access this content by login via Shibboleth, Open Athens or with your Emerald account.
If you would like to contact us about accessing this content, click the button and fill out the form.
To rent this content from Deepdyve, please click the button.