Proceedings of the 2nd World Conference on Business, Management, and Economics
Year: 2024
DOI:
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Exchange Rate as a Determinant of International Trade in Visegrad Countries
Jana Šimáková
ABSTRACT:
Aim of the paper is to evaluate the micro and macrolevel perspective of the exchange rates’ effect on international trade in selected Visegrad Four (V4) countries. For this purpose, we employ the J-curve approach based on the Johansen cointegration and Vector Error Correction model to assess the macroeconomic effects of exchange rate development on the product-level disaggregated international trade of the V4 countries, namely Hungary, Czechia, and Poland. For the detection of analyzed relationships on the micro level, we apply the Generalized Method of Moments to the companies’ data from different industries. The research period encompasses data spanning from 2011 to 2022. Findings confirm the J-curve theory principles only for the agricultural and food sector in Poland. Long-term relationship between sector-specific foreign trade and local currency exchange rates against the euro were also identified for Czechia and Hungary, with all countries exhibiting significant asymmetric exchange rate effects. The macroeconomic analysis shows a trend toward increased exports and improved trade balance following currency depreciation, but the microeconomic analysis, particularly for Hungary, reveals opposite impacts on Return on Assets for small and medium-sized enterprises in the manufacturing sector. This discrepancy highlights the complexity of exchange rate dynamics and underscores the need for context-specific analyses in evaluating exchange rate influences on international trade and financial performance of companies.
keywords: asymmetric effects, company’s performance, currency, FX exposure, J-curve