EXCHANGE RATE VOLATILITY AND INTERNATIONAL TRADE IN POLAND - APPLICATION OF AUGMENTED GRAVITY MODEL
Journal Title: Zeszyty Naukowe Wyższej Szkoły Finansów i Prawa w Bielsku-Białej - Year 2015, Vol 1, Issue 3
Abstract
This paper applies the gravity model to Poland´s international trade with aim to assess the impact of exchange rate uncertainty of Polish zloty on the trade flows with its main trading partners. The basic gravity model shows trade volume between a pair of countries as an increasing function of their sizes (GDP) and a decreasing function of the distance between them. Additional factors included in the extended model are: population, common border and exchange rate volatility. The measure of exchange rate volatility is estimated by GARCH model. The analysis is provided by using quarterly data over the period 1999:1 – 2014:3. The analysis uses panel data regression for 10 sectors of Poland´s international trade based on SITC classification and six major trading partners (Czech Republic, Germany, France, Great Britain, Italy and Slovakia). The significant parameters obtained from panel regression demonstrate that bilateral exchange rate volatility leads to a decrease in Poland´s total trade. The same direction of relationship was confirmed for food and live animal, beverages and tobacco, crude materials, chemicals, manufactured goods, machinery and transport equipment and miscellaneous manufactured articles.
Authors and Affiliations
Daniel Stavarek, Julia Simakova
Keywords
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