Asymmetric Effects of Real Exchange Rate Changes on the Trade between Iran and China

Document Type : Original Article


1 Assistant Professor of Economics, Faculty of Social Sciences, Razi University, Kermanshah, Iran

2 MA in Energy Economics, Faculty of Social Sciences, Razi University, Kermanshah, Iran



The Exchange rate and policies related to that have long been a subject of interest in Iran and one of the main challenges of the country's economy. The exchange rate determinant, effects of currency depreciation or devaluation on a country's trade balance and economic variables are usually critical issue in Iran. So, this paper examines the effect of the real exchange rate on the trade balance between Iran and China which is one of its largest current trade partners. For this purpose, a nonlinear symmetric method is used over the period of 1993-2016. The results show that the most appropriate method in such studies is the use of asymmetric and nonlinear models, and it provides more efficient short-run and long-run coefficient estimates. On the other hand, the increase of the exchange rate, which is the depreciation of the Rial against the Yuan, improves in the long-run and short-run trade, although its long-term effect has been more than its short-term effects. But the depreciation of the Yuan makes the balance in favor of China, as well as the effect of the depreciation of the exchange rate more than its effect on the trade balance between the two countries. Therefore, it is suggested that the realization of the value of the Rial against the yuan and allowing the depreciation of the national currency in line with inflation and other indicators would increase the competitiveness and expand foreign trade.


Alam, M.I., & Quazy, R.M. (2003). Determinant of Capital Flight: an Econometric Case Study of Bangladesh. Review of Applied Economics, 17, 85-103.
- Ali, D. A., Johari, F., & Alias, M. H. (2014). The Effect of Exchange Rate Movements on Trade Balance: A Chronological Theoretical Review. Economics ResearchInternational, 2014, 1-7.
- Amini, A. & Zare, S. (2002). The Analysis of the Role of the Real Exchange Rate and its Fluctuations on Iranian Industrial Exports. Journal of Financial Economics, 38, 99-120 (In Persian).
- Bahmani-Oskooee, M., & Ratha, A. (2004). The J-Curve: A Literature Review. AppliedEconomics. 36(13), 1377-1398.
- Bahmani-Oskooee, M., & Aftab, M. (2018). Asymmetric effects of exchange rate changes on the MalaysiaChina commodity trade. Journal of Economic systems. 42, 470-486.
- Bahmani-Oskooee, M. & Fariditavana, H. (2015). Nonlinear ARDL Approach, Asymmetric Effects and the J-Curve. Journal of Economic Studies 42, 519-530.
- Bahmani-Oskooee, M. & Fariditavana, H. (2016). Nonlinear ARDL Approach and J-Curve Phenomenon. Open Economic Review. 27, 51-70.
- Bahmani-Oskooee, M. & Harvay, H. (2010). The J-Curve Malaysia vs. her Major Trading Partners. Applied Economic, 42, 1067-1076.
- Bahmani-Oskooee, M., Bose, N. & Zhang, Y. (2018). Asymmetry Cointegration, Nonlinear ARDL and the J-Curve: China Versus her 21 Trading Partners. Emergin Market Finance Trade, (forthcoming).
- Banerji, A., Dolado, J., Galbraith, J.W. & Hendry, D.F. (1993). Ciontegration, Error Correction, and the Econometric Analysis of Non-Stationary Data. Oxford University Press.
- Bussiere, M. (2013). Exchange Rate Pass-Through to Trade Prices: the Role of Nonlinearities and Asymmetries. Oxf. Bull. Econ. Stat. 75, 731-758.
- Daee, S., Emamverdi, GH & Shayesteh, A. (2014). Studying the Effect of Real Exchange Rate on Non - Oil Exports in Iran. Journal of Financial Economics, 8, 151-174 (In Persian).
- Dincer, N., Kandil. M. (2009). The Effects of Exchange Rate Fluctuations onExport: A Sectoral Analysis for Turkey. Economic Research Forum, Working Paper, No.480, pp.1-25.
- Dornbusch, R. (1988). Open Economy Macroeconomics, 2nd ed. New York: Basic Books.
- Ebrahimi., M., Kiyani., K., Memarnezhad., A. & Ghafari, F. (2018). Studying Effects of Exchange Rate Fluctuation on Iranian and Chinese Trade Balance with Nonlinear ARDL Approach. Journal of Financial Economics, 44, 21-39 (In Persian).
- Hou. P. (2007). Real Exchange Rate and Manufacturing in China. China Economic Review, 18(3), 335-353.
- Kazeroni, A., Reza Zadeh, A. & Mohammadpor, S. (2011). Asymmetric Effects of Exchange Rate on Non-Oil Exports of Iran Are a Non - Linear Markov Switching Approach. Journal of Economic Modelling, 5, 154-178 (In Persian).
- Ljungqvist., L. (1994). Hysteresis in International Trade: A General Equilibrium Analysis. Journal of International Money and Finance, 13(4), 387–399.
- Memarian., E. & Jalaei., A. R. (2007). The Short-Term and Long-Term Effects of Exchange Shocks on Iranian Business Level (Test of the J - Curve Phenomenon Based on a Vector Error Correction Pattern). Journal of Economic Bulletin, 2, 45-69 (In Persian). 
- Narayan, P.K., Narayan, S. (2004). Estimating Income and Price Elasticity,s of Imports for Fiji in a Cointegration Framework. Economic Modeling, 22, 423-438.
- Ngandu.S. (2008). Exchange Rate and Employment. South Africa Journal of Economics, 76, 205-221.
- Omojimite, B. & Akpokodje, G. (2010). A Comparative Analysis of the Effect of Exchange Rate Volatility on Exports in the CFA and Non-CFA Countries of Africa. Social Sciences Journal, 24, 23-31.
- Pedram., M., Shirinbakhsh., Sh. & Rezaei., B. (2012). Evaluation of Asymmetric Effects of Exchange Rate Fluctuation on Exported Commodity Prices. Journal of Economic Modelling Research, 9, 144-166 (In Persian).
- Pesaran, M.H., Shin, Y. & Smith, R.J. (2001). Bound Testing Approaches to the Analysis of Level Relationship J. Applied Economic, 16, 289-326.
- Rahman, S. & Serletis, A. (2009). The Effects of Exchange Rate Uncertainty on Exports. Journal of Macroeconomics, 31, 500-507.
- Rasekhi, S., Shahrzadi, M. & Abdollahi, M. R. (2012). Asymmetric Effect of the Exchange Rate and its Fluctuation on Non-Oil Exports in Iran. Journal of Economic Growth and Development Research, 7, 81-90 (In Persian).
- Salvatore, D. (2013). International Economics. John Wiley & Sons.
- Serenis, D. & Tsounis, N. (2013). Exchange Rate Volatility and Foreign Trade: The case for Cyprus and Croatia. Procedia Economics and Finance, 5, 677-685.
- Shin, Y., Yu, B. & Greenwood-Nimmo, M. (2014). Modelling Asymmetric Cointegration and Dynamic Multipliers in a Nonlinear ARDL Framework. In:Sickels, R., Horrace, W. (Eds.), Festschrift in Honor of Peter Scgmidt: Econometric Methods and Applications. Springer, 281-314.
- Tayebi, S.K., Yadani, M. & Khanzadi, A. (2010). Iran's Trade Balance and Dynamics of the J Curve Mechanism in Uncertainy. Journal of Monetary and Banking Research, 2 (3), 93-114 (In Persian).
- Tavakoli, A., Seyah, M. (2010). The Effects of Exchange Rate Fluctuations on Economic Activity of the Country.Journal of Money and Economics, 4, 59-77 (In Persian).
- Yusoff, M. B. & Sabit, A. H. (2015). The Effects of Exchange Rate Volatility on ASEAN-China Bilateral Exports. Journal of Economics, Business and Management, 3(5), 479-482.