DIFFERENTIAL IMPACTS OF EXCHANGE RATE FLUCTUATIONS ON TRADE BALANCE AND ECONOMIC OUTPUT

Abstract This study investigates the asymmetric influences of exchange rate fluctuations on trade performance and economic growth within eight of ASEAN's largest economies over a comprehensive period spanning from 1970 to 2019. Employing the non-linear autoregressive distributed lag (NARDL) methodology, the empirical analysis confirms a long-term equilibrium relationship among exchange rates, trade dynamics, and output trajectories. The findings reveal distinct short-term and long-term responses to currency movements across countries. While ASEAN experienced short-term trade and output boosts from both currency appreciation and depreciation, Singapore witnessed the opposite. Indonesia and Malaysia exhibited improved short-term trade and growth following currency appreciation, but long-term trends favored depreciation. Cambodia and Vietnam displayed similar patterns, except for a marginally negative short-term trade impact from currency depreciation. Overall, the study indicates that both currency appreciation and depreciation have adverse effects on long-term trade balances across most ASEAN nations, although depreciation often stimulates short-term trade. Similarly, currency depreciation tends to positively influence short-term growth, whereas appreciation generally has a negative impact. Based on these results, the study concludes with policy recommendations tailored to the continent's specific economic conditions.