Exchange rate volatility and commodity trade between the U.S. and the Philippines

Abstract

ASEAN, the Association of Southeast Asian Nations, was founded in 1967 and the Philippines is one of the founding members. Since it relies upon floating exchange rates, its trade flows could be affected by uncertainty introduced by such rates. Previous studies used aggregate trade flows of the Philippines with the rest of the world and did not find any significant effects of exchange rate uncertainty on its trade flows. Suspecting that those studies suffer from aggregation bias, in this paper we concentrate on its trade flows with its major partner, the U.S., and disaggregate these flows by commodity. We then investigate the sensitivity of 133 U.S. exporting industries to the Philippines and 64 U.S. importing industries from the Philippines to exchange rate uncertainty. We find that almost half of the commodity flows are affected in the short-run. The short-run effects last into the long run in 50 % of the affected industries.