The impact of exchange rate volatility on emerging market exports

Abstract

Orientation: High exchange rate volatility has implications for business and policy decisions and exchange rate movements are important in debates around trade and trade policies. Research purpose: The purpose of the research was to determine the impact of exchange rate volatility on exports in emerging markets. Motivation for the study: A lack of clarity in literature regarding this relationship increases the risk of improper planning by export organisations as well as implementing suboptimal economic policies. Research design, approach and method: This research analysed the effect of exchange rate volatility on emerging market exports using a sample of nine emerging countries from 1995 to 2010. Panel data analysis was conducted. Volatility was measured by Generalised Autoregressive Conditional Heteroscedasticity and conventional standard deviation in order to determine if the instrument of volatility used influenced the nature of the relationship between exchange rate volatility and exports. The Pedroni residual cointegration method was used to test for panel cointegration in order to determine if there was a long-run relationship. Main findings: The results showed that exchange rate volatility had a significant negative effect on the performance of exports, regardless of the measure of volatility used. It was also evident that a long-run relationship did exist. Practical/managerial implications: The study concluded that the policy mix that will reduce exchange rate volatility (such as managed exchange rate regimes) and relatively competitive exchange rates were essential for emerging markets in order to sustain their exports performance. Contribution/value-add: This research provided policy makers of emerging market economies with new evidence pertaining to the relationship between exchange rate volatility and the performance of exports. This research contributed to the existing knowledge on the topic and provides a base for future research on related topics.

The impact of exchange rate volatility on inflation targeting monetary policy in emerging and advanced economies

“…Furthermore, excessive volatility can negatively impact output growth and trade as well. Several studies demonstrate that exchange rate volatility has a significant negative effect on exports and trade in EMEs (Bahmani-Oskooee & Hegerty, 2007;Coric & Pugh, 2010;Hall, Hondroyiannis, Swamy, Tavlas, & Ulan, 2010;Khosa, Botha, & Pretorius, 2015). In studying 45 emerging and developing economies, Barguellil, Ben-Salha, and Zmami (2018) find that both real and nominal exchange rate volatility decrease economic growth, supporting the findings in Schnabl (2007).…”

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“…The results showed a negative correlation between manufacturing sector performance and exchange rate fluctuations. In a similar study by Khosa et al (2015) survey results showed a clear and significant negative relationship between exchange rate fluctuations and export performance.…”

Exchange Rate Volatility and Malawi’s Tobacco Exports to The United Kingdom and The United States

“…According to Situ (2015), the effects of exchange rate volatility also depends on the different economic characteristics of the exporting countries. While confirming the existence of a long term relationship between exports and exchange rate volatility, Khosa et al, (2015) argue that the variance in the country's currency imposes a negative effect on exports from emerging markets. As such, policy makers in the emerging market economies need to pay attention to the currency movements to sustain export performance.…”

“…Many scholars, including Situ (2015) and Khosa et al (2015) argue that persistent fluctuations of a country's exchange rates over a sustained period of time can send mixed signals to the country's export fortunes. The volatility is mainly experienced in regimes of floating exchange rates, although the monetary authorities, under fixed exchange rate policies, can vary the exchange rates to reflect specific policy objectives.…”