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An Empirical Analysis of Short-Run and Long-Run Irish Export Functions: Does Exchange Rate Volatility Matter?

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  • Bredin, Don

    (University College Dublin)

  • Fountas, Stilianos

    (National University of Ireland, Galway)

  • Murphy, Eithne

    (National University of Ireland, Galway)

Abstract

We analyse the long-run and short-run relationship between merchandise export volume and its determinants, foreign income, relative prices and exchange rate volatility. The Irish export sector is dualistic, with relatively smaller indigenous firms dominating the more low technology production sectors, while larger subsidiaries of foreign owned multinationals tend to dominate the more high technology sectors. Given the dualistic nature of the Irish export sector, it was considered appropriate to estimate, in addition to a general export function, a separate function for sectors. This allows to draw conclusions about the effect of volatility on different types of enterprises.The model was estimated for Irish exports and sectoral exports SITC 0-4 and SITC 5-8 to the EU using quarterly data for the period 1979-1992. The sectoral classification corresponds to the exports of mainly indigenous Irish firms and multinationals, respectively. We find that the exchange rate volatility has no effect on the volume of trade in the short-run but a significant positive effect in the long run. This is true in the aggregate and for our sectoral classifications. Our results have important policy implications arising from Ireland’s participation in the EMU since the launch of the single European currency on 1 January, 1999. They allow us to tentatively conclude that the decline in intra-EU exchange rate volatility associated with the single currency may lead to a long-run fall in Irish exports to the EU.

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Bibliographic Info

Paper provided by Central Bank of Ireland in its series Research Technical Papers with number 1/RT/02.

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Length: 32 pages
Date of creation: Mar 2002
Date of revision:
Handle: RePEc:cbi:wpaper:1/rt/02

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References

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Citations

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Cited by:
  1. Brito, Márcio Holland de & Vieira, Flávio Vilela & Silva, Cleomar Gomes da & Bottecchia, Luiz Carlos, 2011. "Growth and exchange rate volatility: a panel data analysis," Textos para discussão 296, Escola de Economia de São Paulo, Getulio Vargas Foundation (Brazil).
  2. Koi Nyen Wong & Tuck Cheong Tang, 2007. "Exchange Rate Variability And The Export Demand For Malaysia'S Semiconductors: An Empirical Study," Development Research Unit Working Paper Series, Monash University, Department of Economics 13-07, Monash University, Department of Economics.
  3. P�l Boug & Andreas Fagereng, 2010. "Exchange rate volatility and export performance: a cointegrated VAR approach," Applied Economics, Taylor & Francis Journals, Taylor & Francis Journals, vol. 42(7), pages 851-864.
  4. Jorge Iván Canales Kriljenko & Cem Karacadag & Roberto Pereira Guimarães, 2003. "Official Intervention in the Foreign Exchange Market," IMF Working Papers 03/152, International Monetary Fund.
  5. Aderbal Oliveira Damasceno & Flávio Vilela Vieir, 2014. "Desalinhamento Cambial, Volatilidade Cambial E Crescimento Econômico: Uma Análise Para A Economia Brasileira (1995-2011)," Anais do XLI Encontro Nacional de Economia [Proceedings of the 41th Brazilian Economics Meeting], ANPEC - Associação Nacional dos Centros de Pósgraduação em Economia [Brazilian Association of Gra 100, ANPEC - Associação Nacional dos Centros de Pósgraduação em Economia [Brazilian Association of Graduate Programs in Economics].
  6. Arief Bustaman & Kankesu Jayanthakumaran, 2006. "The Impact of Exchange Rate Volatility on Indonesia’s Exports to the USA: An Application of ARDL Bounds Testing Procedure," Working Papers in Economics and Development Studies (WoPEDS), Department of Economics, Padjadjaran University 200610, Department of Economics, Padjadjaran University, revised Dec 2006.
  7. Nishimura, Yusaku & Hirayama, Kenjiro, 2013. "Does exchange rate volatility deter Japan-China trade? Evidence from pre- and post-exchange rate reform in China," Japan and the World Economy, Elsevier, Elsevier, vol. 25, pages 90-101.
  8. O'Donnell, Nuala, 2005. "Re-Estimation of the Trade Block in the Banks Quarterly Econometric Model," Quarterly Bulletin Articles, Central Bank of Ireland, pages 97-117, July.
  9. Gilda Fernandez & Cem Karacadag & Rupa Duttagupta, 2004. "From Fixed to Float," IMF Working Papers 04/126, International Monetary Fund.

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