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Exchange Rate Volatility and Exports: Some New Estimates From the Asean-5

Author

Listed:
  • Kamal P. Upadhyaya
  • Dharmendra Dhakal
  • Franklin G. Mixon, Jr.

    (University of New Haven, U.S.A.
    Tennessee State University, U.S.A
    Columbus State University, U.S.A.)

Abstract

This study addresses the relative paucity of research on the effect of exchange rate volatility on export performance in Southeast Asia by examining this relationship for the ASEAN-5 group, which includes Thailand, Malaysia, Singapore, Indonesia and the Philippines. In doing so, our study develops an export function model with domestic output, world output, terms of trade and exchange rate volatility as explanatory variables, and export volume as the dependent variable. To capture exchange rate volatility, we use of the real effective exchange rate, as opposed to the traditional bilateral exchange rate, as it accounts for price levels in the countries under study. From a statistical perspective, export volatility is derived from the real effective exchange rate using a GARCH model. Estimates for each of the ASEAN-5 countries are produced from panel data. Unit root tests indicate that all of the variables’ series are integrated of order one, and hence they are stationary only in first-difference form. A Johansen-Fisher panel cointegration test rejects the null hypothesis of no cointegration. As such, the main model includes an error correction term, and, in order to ensure that the unobserved country-specific variables are not correlated with the right-hand side variables, a fixed effects estimator is used. The results suggest that changes in both domestic and world output have a positive effect on export volume, while a deterioration in the terms trade has a negative effect on export volume, at least for countries in this region. Lastly, exchange rate volatility has a negative impact on the export performance of the ASEAN-5. Our results suggest that, even though it is not possible to completely eliminate exchange rate volatility, governments can adopt appropriate macroeconomic policies to minimize the volatility of their respective currencies. In particular, given that the ASEAN-5 countries have adopted floating exchange rate systems, their corresponding central banks can intervene in the market in order to minimize exchange rate volatility. Additionally, these central banks might work to reduce volatility in their respective price levels as well.

Suggested Citation

  • Kamal P. Upadhyaya & Dharmendra Dhakal & Franklin G. Mixon, Jr., 2020. "Exchange Rate Volatility and Exports: Some New Estimates From the Asean-5," Journal of Developing Areas, Tennessee State University, College of Business, vol. 54(1), pages 65-73, January-M.
    • Handle: RePEc:jda:journl:vol.54:year:2020:issue1:pp:65-73
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    1. John H. Makin & Dennis E. Logue & Carl H. Stem, 1976. "Eurocurrencies and the International Monetary System," Books, American Enterprise Institute, number 52119, September.
    2. Siregar, Reza & Rajan, Ramkishen S., 2004. "Impact of exchange rate volatility on Indonesia's trade performance in the 1990s," Journal of the Japanese and International Economies, Elsevier, vol. 18(2), pages 218-240, June.
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    Cited by:

    1. Chrysanthi Balomenou & Erisa Pajollari, 2022. "Impact of Exchange Rate Volatility on International Trade: Case of USA and Canada," International Journal of Business and Economic Sciences Applied Research (IJBESAR), Democritus University of Thrace (DUTH), Kavala Campus, Greece, vol. 15(1), pages 47-57, July.
    2. Marinakis, Yorgos D. & White, Reilly & Walsh, Steven T., 2020. "Lotka–Volterra signals in ASEAN currency exchange rates," Physica A: Statistical Mechanics and its Applications, Elsevier, vol. 545(C).
    3. Audi, Marc, 2024. "The Impact of Exchange Rate Volatility on Long-term Economic Growth: Insights from Lebanon," MPRA Paper 121634, University Library of Munich, Germany.
    4. Upadhyaya, Kamal & Bhandari, Rabindra & Mixon, Franklin G. JR., 2020. "Exchange Rate Volatility and its Impact on China's Trade with the United States," Economia Internazionale / International Economics, Camera di Commercio Industria Artigianato Agricoltura di Genova, vol. 73(3), pages 373-388.

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    More about this item

    Keywords

    Exchange Rate Volatility; Trade Volume; ASEAN-5; Panel Data;
    All these keywords.

    JEL classification:

    • F31 - International Economics - - International Finance - - - Foreign Exchange
    • F33 - International Economics - - International Finance - - - International Monetary Arrangements and Institutions

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