APEC and Trade Liberalization

Abstract

The paper aims to see the effect of Nominal, Real (External) and Effective Exchange rates (EER) of the U.S dollar on its of Trade with two of its APEC trading partners Australia and New Zealand for the period 1991 to 2010. For analysis, the whole values, percentage changes and relationships between Nominal, Real, EER and of Trade of U.S with the two countries has been taken into consideration. In order to fully access the relationship between the EER and TOT of the U.S with the two trading partners, the Classical Regression analysis is used. It was found that the Real Exchange rate was overvalued as compared to the Nominal Exchange It was also found that when compared to Nominal exchange rate, Real exchange rate is more effective in explaining the TOT. The Real AUD/USD had both short run and long run impacts on the TOT of U.S.A with Australia but the Real NZD/USD had no impact on the TOT of U.S.A with New Zealand. The EER has been found to be the most effective in determining the TOT balance. The regression analysis showed a regression function of Terms of Trade= -122.026 + 2.1 Effective Exchange Rate. The relationship is found by coefficient correlation (r) and there is found to be a positive and strong relationship between the two variables. The �� 2 value shows that although some values of the TOT are caused by the EER, there are also other variables that might be influencing the EER as well. The t-values show that the values of β0 and β1 are significant. Also the F-test confirms the overall significance of the model and terms the results as authentic. I. Introduction The APEC (Asian-Pacific Economic Cooperation) was founded initially because of the increasing interdependence of the Asia-Pacific countries and due to the dawn of several trade blocs at that time, particularly the G8. Ever since the Asian-Pacific Economic Cooperation (APEC) was established in 1989, it has succeeded in reducing major trade barriers across the Asia-Pacific region to enhance trade in the area (Baak, 2005). Not only that, the APEC forum has increased to 21 Pacific Rim countries that include many strong emerging economies such as; Canada, Indonesia, Malaysia, China, Japan, Russia, Mexico, U.S, Australia and New Zealand etc (Elek, 1991). Out of these countries, the most interesting trade pattern is the one between the