On the (a)symmetric effects of real exchange rate on trade flows: new evidence from US–Vietnam trade balance at the industry level

Abstract

In this paper, we examined the asymmetric and symmetric effects of real exchange rate on bilateral trade balance between the United States and Vietnam at the industry level by employing both ARDL and NARDL models. We found that (i) only symmetric real exchange rate is statistically significant in explaining the total trade balance between the US and Vietnam in the long-run at the 10% statistical significant level; (ii) the effect at the industry level is mixed and dependent on product category; and (iii) the asymmetric effects are found in both short-run and long-run in 29 industries which account for 69% of the total industry. These findings suggest that Vietnam could import more commodities with a high import weight such as agricultural products, cork and wood, textile fiber, chemicals, and machinery products to reduce the US’s trade deficit.