Vietnam's exports to Korea and the real exchange rate: Post-crisis evidence from the multiple threshold nonlinear autoregressive distributed lag model

Abstract

In this study, the asymmetric effects of the real exchange rate on Vietnam's exports to Korea were investigated using the multiple threshold nonlinear autoregressive distributed lag (MTNARDL) model. As a result, the MTNARDL model exhibited enhanced estimation accuracy compared to the single-threshold nonlinear autoregressive distributed lag (NARDL) model. Furthermore, the aggregate bias problem was solved using individual export data for 16 major industries instead of relying on the overall export value data. The results revealed the substantial asymmetric impact of real exchange rate fluctuations in the short and long run. Fluctuations in the real exchange rate boosted Vietnam's exports to the Republic of Korea in the long run, with minimal negative influence. This indicates that the depreciation of the Vietnamese dong against the United States (US) dollar encouraged exports in some industries but limited exports in others. However, the short-term effect of the real exchange rate remains uncertain, as it could be either negative or positive depending on the industry and threshold level. The diverse impacts of the real exchange rate fluctuations on exports across industries were attributed to factors such as the capacity to absorb foreign exchange risks, product heterogeneity, and the ease of adjusting inputs and production for each sector. Therefore, these findings may help policymakers develop Vietnam-specific policies to address long- and short-term changes in the threshold levels of real exchange rate fluctuations.