Two-step system GMM estimation
| Standardized value (SD) of exchange rate | Conditional variance of exchange rate | |||
|---|---|---|---|---|
| (1) | (2) | (3) | (4) | |
| Variables/approach | System GMM | System GMM | System GMM | System GMM |
| Bilateral trade performance (t-1) | 0.781*** (0.0550) | 0.808*** (0.0542) | 0.767*** (0.0577) | 0.764*** (0.0578) |
| Exchange rate volatility | −0.102** (0.0424) | −2.43e-08** (1.13e-08) | ||
| Exchange rate volatility (t-1) | −0.0937** (0.0365) | −3.81e-08* (1.93e-08) | ||
| Level of output | 0.230*** (0.0616) | 0.207*** (0.0615) | 0.255*** (0.0666) | 0.258*** (0.0671) |
| Output volatility | −0.0121 (0.0274) | −0.0170 (0.0253) | −0.0112 (0.0284) | −0.0108 (0.0286) |
| Level of income | −0.0375 (0.0709) | 0.0476 (0.0483) | −0.0321 (0.0735) | −0.0336 (0.0733) |
| Bilateral distance | −0.599*** (0.181) | −0.544*** (0.179) | −0.637*** (0.199) | −0.651*** (0.202) |
| Common language | 1.598 (1.053) | 1.487 (0.953) | 1.462 (0.882) | 1.426 (0.881) |
| Common border | −0.319** (0.149) | −0.277** (0.136) | −0.359** (0.162) | −0.366** (0.165) |
| Constant | 3.344*** (1.196) | 2.470** (1.069) | 3.401*** (1.274) | 3.508*** (1.287) |
| Observations | 573 | 573 | 573 | 573 |
| Country-pair | 56 | 56 | 56 | 56 |
| Year dummy | Yes | Yes | Yes | Yes |
| Instruments | 12 | 12 | 12 | 12 |
| AR(1) | 0.041 | 0.047 | 0.041 | 0.041 |
| AR(2) | 0.340 | 0.346 | 0.337 | 0.329 |
| Sargan test | 0.518 | 0.490 | 0.504 | 0.517 |
| Hansen test | 0.180 | 0.157 | 0.169 | 0.181 |
| Standardized value (SD) of exchange rate | Conditional variance of exchange rate | |||
|---|---|---|---|---|
| (1) | (2) | (3) | (4) | |
| Variables/approach | System GMM | System GMM | System GMM | System GMM |
| Bilateral trade performance ( | 0.781*** (0.0550) | 0.808*** (0.0542) | 0.767*** (0.0577) | 0.764*** (0.0578) |
| Exchange rate volatility | −0.102** (0.0424) | −2.43e-08** (1.13e-08) | ||
| Exchange rate volatility ( | −0.0937** (0.0365) | −3.81e-08* (1.93e-08) | ||
| Level of output | 0.230*** (0.0616) | 0.207*** (0.0615) | 0.255*** (0.0666) | 0.258*** (0.0671) |
| Output volatility | −0.0121 (0.0274) | −0.0170 (0.0253) | −0.0112 (0.0284) | −0.0108 (0.0286) |
| Level of income | −0.0375 (0.0709) | 0.0476 (0.0483) | −0.0321 (0.0735) | −0.0336 (0.0733) |
| Bilateral distance | −0.599*** (0.181) | −0.544*** (0.179) | −0.637*** (0.199) | −0.651*** (0.202) |
| Common language | 1.598 (1.053) | 1.487 (0.953) | 1.462 (0.882) | 1.426 (0.881) |
| Common border | −0.319** (0.149) | −0.277** (0.136) | −0.359** (0.162) | −0.366** (0.165) |
| Constant | 3.344*** (1.196) | 2.470** (1.069) | 3.401*** (1.274) | 3.508*** (1.287) |
| Observations | 573 | 573 | 573 | 573 |
| Country-pair | 56 | 56 | 56 | 56 |
| Year dummy | Yes | Yes | Yes | Yes |
| Instruments | 12 | 12 | 12 | 12 |
| AR(1) | 0.041 | 0.047 | 0.041 | 0.041 |
| AR(2) | 0.340 | 0.346 | 0.337 | 0.329 |
| Sargan test | 0.518 | 0.490 | 0.504 | 0.517 |
| Hansen test | 0.180 | 0.157 | 0.169 | 0.181 |
Note(s): Robust S.E. in parentheses. *, ** and ***Significant at 10, 5 and 1%, respectively. To control instrument proliferation, the lag limits (2 4) are used. SD refers standard deviation
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