Does exchange rate volatility discourage international trade? A meta-regression analysis

Abstract

Since the breakdown of the Bretton Woods agreement, the trade effect of exchange rate variability (ERV) has been contentious. However, neither the theoretical nor the empirical literature provides unambiguous guidance on the trade effect of ERV. This article applies metaregression analysis to the empirical literature and finds evidence of: modest publication bias; a range of authentic empirical effects that are highly conditional, even with respect to sign and, correspondingly, pronounced heterogeneity in the reported results. Investigation of this heterogeneity reveals that the results are significantly influenced both by authors' modelling strategies and by the contexts of their investigations. In particular, researchers are most likely to find an adverse trade effect by investigating low-frequency real exchange variability and trade between less developed economies, hence, beyond the reach of hedging opportunities (as suggested by previous studies). In general, our most important advice for policy makers is that economic research does not reveal a single representative effect size.

FDI location and exchange rates. is there really a relationship between the two?

“…The exchange rate led FDI inflow hypothesis is supported by Haile and Pugh (2013), Husek and Pankova (2008), Jeanneret (2005), amongst others. According to Husek and Pankova (2008), a depreciation of the host country's currency leads to significant inflow of FDI because the multinational enterprises want to take advantage of the weaker currency before it strengthens.Using data from the 27 OECD countries during the period between 1982 to 2002, Jeanneret (2005) found out that the relationship between FDI inflows and exchange rate stability was depicted in a U-shape format.…”

Exchange rate volatility and international trade: International evidence from the MINT countries

“…Bredin et al (2003) use both aggregate and sectoral export data from Ireland to the European Union, their results suggest that exchange rate volatility has no effect in the short term, but a positive and significant effect in the long term. Hall et al (2010) Finally, Haile and Pugh (2013) apply meta-regression analysis to the existing empirical literature on the impact of exchange rate volatility on international trade and find some evidence of publication bias. They show that researchers reported results are significantly influenced both by authors' modelling strategies and by the contexts of their investigations.…”

Exchange rate volatility and UK imports from developing countries: The effect of the global financial crisis

“…Many studies to date have 4 Some previous studies have also documented little or no significant effect of the exchange rate variability on international trade (see Koray and Lastrapes, 1989;Bahmani-Oskooee, 1991;Gagnon, 1993and Haile and Pugh, 2013). 5 Third country effect is the change in the trade between two countries due to the exchange rate movement of a third country not involved in the trade (Cushman, 1986).…”