Abstract
M.Com. (Economic Development and Policy Issues)
This research analyses the effect of exchange rate volatility on exports using
a sample of nine emerging countries – Argentina, Brazil, India, Indonesia,
Mexico, Malaysia, Poland, South Africa and Thailand – between 1995 and
2010. The study uses panel data models, with a standard exports equation
with exports performance determined by exchange rate volatility, the level of
exchange rate, demand conditions in major countries as well as terms of
trade. Exchange rate volatility is measured by Generalised Autoregressive
Conditional Heteroscedasticity (GARCH) and conventional standard deviation
in order to determine if the instrument of volatility used influences the nature
of the relationship between exchange rate volatility and exports. The results
show that exchange rate volatility has a significant negative effect on the
performance of exports regardless of the measure of volatility used. The
Pedroni residual cointegration method was used to test for panel cointegration
to determine if there is a long-run relationship among the variables, and the
test showed that a long-run relationship does exists. Generally, the study
concludes that policy mix that will reduce exchange rate volatility (such as
managed exchange rate regimes) and relatively competitive exchange rates
are essential for emerging markets in order to sustain their exports
performance.