The effects of exchange rate regime on trade between top 21 trading nations: an aggregate and commodity group analysis

This paper statistically analyzes the effects of exchange rate regime on trade value between the top 21 trading countries for the years 1996 till 2014. It consists of two parts. The first part reviews aggregate trade data between top trading countries. The second part performs analysis and compares the aggregate trade data to the data of the four most frequently traded commodities in order to see if the effect of the exchange rate regime is similar. To carry out this analysis and see effects, an augmented bilateral gravity model of trade is used. Through the use of Ordinary Least Squared regressions, the effect of the exchange rate regime on trade is formulated. The analyzed aggregate trade results showed that trade value is positively affected by a fixed exchange rate regime. Comparing obtained results to the commodity models, it was concluded that the effects shown by the aggregate trade model was significantly different from the four most frequently traded commodity models