As Brazil continues its emergence as a major world economy, it has enjoyed both increased trade and capital inflow-fueled currency appreciations. But while it is often thought that exchange-rate volatility hurts trade, the economic literature has found that this is not always true. This study examines bilateral export and import flows between the United States and Brazil from 1971 to 2010, using cointegration analysis to estimate the effects of this risk. This study arrives at three main conclusions. First, while the majority of industries are not affected by volatility in the long run, an unexpectedly large share of those that are affected responds positively to increased risk. Second, sensitivity to risk differs markedly by industry sector: Brazilian exports of agricultural products are particularly harmed, while U.S. machinery imports are not impacted at all. Finally, products with small trade shares more likely to respond to increased uncertainty than are major exporters.
All Science Journal Classification (ASJC) codes
- Economics and Econometrics