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Exchange rate elasticity of exports and the role of institutions

Author

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  • Aygun Garayeva

    (Central Bank of the Republic of Azerbaijan)

  • Gulzar Tahirova

    (Central Bank of the Republic of Azerbaijan)

Abstract

The impact of institutional quality on the exchange rate-export relation is assessed in a panel of 33 countries and quarterly time period of 1991Q1- 2016Q3. Empirical estimation is conducted in 2 steps. As a first step, using panel DOLS, FMOLS and PMG estimation techniques, it is confirmed that a negative and significant relation between exchange rates and exports exists. The estimation suggests that in the countries under study, 1% appreciation of the real effective exchange rate leads to, approximately, 0.55% decrease in total exports on average, holding other variables constant. In a separate cross-sectional estimation using simple OLS, some empirical evidence has been found to prove that institutional quality positively affects the exchange rate elasticity of exports. Also it has been shown that in oil exporting countries institutional quality has a greater impact on exchange rate-export link, compared to oil importers. But these results are only weakly significant and are not robust to the use of other proxy variables.

Suggested Citation

  • Aygun Garayeva & Gulzar Tahirova, 2017. "Exchange rate elasticity of exports and the role of institutions," IHEID Working Papers 16-2017, Economics Section, The Graduate Institute of International Studies.
    • Handle: RePEc:gii:giihei:heidwp16-2017
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    Cited by:

    1. Chen Chen & Nimesh Salike & Willem Thorbecke, 2023. "Exchange rate effects on China's exports: Product sophistication and exchange rate elasticity," Asian Economic Journal, East Asian Economic Association, vol. 37(3), pages 371-400, September.

    More about this item

    Keywords

    exchange rates; exports; institutional quality; oil exporters; panel data;
    All these keywords.

    JEL classification:

    • F14 - International Economics - - Trade - - - Empirical Studies of Trade
    • F31 - International Economics - - International Finance - - - Foreign Exchange
    • D73 - Microeconomics - - Analysis of Collective Decision-Making - - - Bureaucracy; Administrative Processes in Public Organizations; Corruption
    • C31 - Mathematical and Quantitative Methods - - Multiple or Simultaneous Equation Models; Multiple Variables - - - Cross-Sectional Models; Spatial Models; Treatment Effect Models; Quantile Regressions; Social Interaction Models
    • C33 - Mathematical and Quantitative Methods - - Multiple or Simultaneous Equation Models; Multiple Variables - - - Models with Panel Data; Spatio-temporal Models

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