The Moderating Effect of Exchange Rate Volatility on Export Diversification and Economic Growth Nexus in the G7 Countries

Abstract

This paper examines the nexus between export diversification and economic growth in the G7 countries and how exchange rate volatility affects this relationship. Using data covering from 1995 to 2018, the study applies the fully modified ordinary least squares (FMOLS) and dynamic ordinary least squares (DOLS) techniques to examine the long-run impact of export diversification on economic growth. The results show that export diversification significantly enhances economic growth in the G7 countries. Nonetheless, the growth-enhancing effect of export diversification is inimically affected by exchange rate volatility. We also document that trade openness significantly accelerates growth which supports the trade-led growth hypothesis in the bloc. To the best of the researchers' knowledge, there is no specific study on the export diversification and economic growth relationship in the G7 countries. Besides, based on a detailed review of the literature, we are unaware of any empirical research that considers the moderating impact of exchange rate volatility on the export diversification-growth nexus.

Impact of Neighbouring Currencies on Nigeria’s Currency Instability

“…The study established that exchange rate instability has an inverse influence on output growth by decelerating the increase of factor productivity. Some other empirical research related to this study included those by Latief and Lefen (2018), Yakub et al (2018), and Jamal and Bhat (2022).…”

“…Many researchers have discussed the exchange rate volatility of Nigeria's currency such as Yakub et al (2018) and Dahiru et al (2021). However, to the best of the authors' knowledge or rather based on the available literature, none have talked about how the exchange rate volatility of countries bordering Nigeria has impacted on the naira exchange rate.…”

“…Many researchers addressed the exchange rate volatility of Nigeria's currency such as Yakub et al (2018), Bolfek and Wronska-Bukalska (2020), Khan (2020), Haruna et al (2019) to name but a few. However, none studied whether the exchange rate volatility of Nigeria's neighbouring countries has impacted on Nigeria's exchange rate -hence the reason for this study.…”