Export Promotion through Exchange Rate Changes: Exchange Rate Depreciation or Stabilization?

Exchange rate movements affect exports in two ways--rate depreciation and rate variability (risk). A depreciation raises exports, but the associated exchange rate risk could offset that positive effect. The present paper investigates the net effect for eight Asian countries using a dynamic condition...

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Bibliographic Details
Published in:Southern economic journal 2006-01, Vol.72 (3), p.611-626
Main Authors: Fang, WenShwo, Lai, YiHao, Miller, Stephen M.
Format: Article
Language:English
Subjects:
Analysis
Asia
Currency
Depreciation
Developing countries
Dynamic models
Economic models
Empirical tests
Exchange rates
Exporters
Exports
Financial models
Fixed exchange rates
Forecasts and trends
Foreign exchange
Foreign exchange rate risk
Foreign exchange rates
Foreign trade promotion
GARCH models
International finance
International monetary operations
International trade
LDCs
Prices and rates
Real exchange rates
Revenue
Standard deviation
Statistical discrepancies
Studies
Time series
US exports
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Summary:Exchange rate movements affect exports in two ways--rate depreciation and rate variability (risk). A depreciation raises exports, but the associated exchange rate risk could offset that positive effect. The present paper investigates the net effect for eight Asian countries using a dynamic conditional correlation bivariate GARCH-M model that simultaneously estimates time-varying correlation and exchange rate risk. Depreciation encourages exports, as expected, for most countries, but its contribution to export growth is weak. Exchange rate risk contributes to export growth in Malaysia and the Philippines, leading to positive net effects. Exchange rate risk generates a negative effect for six of the countries, resulting in a negative net effect in Indonesia. Japan, Singapore, and Taiwan and a zero net effect in Korea and Thailand.
ISSN:0038-4038
2325-8012
DOI:10.1002/j.2325-8012.2006.tb00723.x