Effect of Exchange Rate Volatility on Export Volume in BRICS and G7 Countries: Panel Data Analysis

RIn line with the advancements in the international monetary system from the 1870s to the present day, countries have adopted both fixed and flexible exchange rate regimes. Under the fixed exchange rate regime, countries preferred to realize devaluation by devaluing their currencies to gain a competitive advantage and reach the desired commercial position, especially in the 1930s. However, this situation caused the trading partner countries to resort to retaliatory monetary and trade policies afterward. Thus, countries entered a competitive devaluation cycle one after another. Furthermore, it is known that countries make various interventions in the foreign exchange market to gain a competitive advantage under the flexible exchange rate regime applied under today’s conditions. Especially after the global financial crisis, countries accusing each other of exchange rate manipulation brought these debates back to today’s agenda. The present study examined the exchange rate volatility of both developed (G7) and developing (BRICS) countries and its effect on export volume by panel data analysis. In the analysis, the exchange rate volatility of countries was accepted as the main determining variable on export volume. Whereas empirical findings confirmed the effect of exchange rate volatility on export volume in BRICS countries, it was found that exchange rate volatility has no effect on export volume in G7 countries. Moreover, since the effect of exchange rate volatility on export volume in BRICS countries is negative, it was understood that exchange rate volatility causes a trade contraction effect. However, a similar conclusion could not be reached for G7 countries. In this regard, our study is important in that exchange rate volatility affects developed and developing countries in different ways and this difference needs to be revealed.