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

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  • Choudhry, Taufiq
  • Hassan, Syed S.

Abstract

This paper studies the role of exchange rate volatility in determining the UK's real imports from three major developing countries – Brazil, China, and South Africa. The paper contributes to the literature by investigating the third country effect and also by analyzing the impact of the current financial crisis on the relationship between exchange rate volatility and UK imports. This paper further expands the empirical literature on the subject by offering evidence based on the asymmetric autoregressive distributed lag (ARDL) method from the application of monthly data from January 1991 to December 2011. Results suggest that exchange rate volatility plays an important role in determination of trade and also reveal a significant effect of the recent financial crisis on UK imports. This finding remains consistent when we test for the third country volatility effect. We also find that there is a significant causal relationship between exchange rate volatility and UK imports. The third country effect is significant for all the countries investigated. These results have significant implications for the trade policy and international trade in minimizing the underlying risk factors and ensuring stable trade flows in different economic scenarios.

Suggested Citation

  • Choudhry, Taufiq & Hassan, Syed S., 2015. "Exchange rate volatility and UK imports from developing countries: The effect of the global financial crisis," Journal of International Financial Markets, Institutions and Money, Elsevier, vol. 39(C), pages 89-101.
  • Handle: RePEc:eee:intfin:v:39:y:2015:i:c:p:89-101
    DOI: 10.1016/j.intfin.2015.07.004
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    3. Muhammad Aftab & Rubi Ahmad & Izlin Ismail & Kate Phylaktis, 2021. "Economic integration and the currency and equity markets nexus," International Journal of Finance & Economics, John Wiley & Sons, Ltd., vol. 26(4), pages 5278-5301, October.
    4. Duc Hong Vo & Anh The Vo & Zhaoyong Zhang, 2019. "Exchange Rate Volatility and Disaggregated Manufacturing Exports: Evidence from an Emerging Country," JRFM, MDPI, vol. 12(1), pages 1-25, January.
    5. Pabai Fofanah, 2020. "Effects of Exchange Rate Volatility on Trade: Evidence from West Africa," Journal of Economics and Behavioral Studies, AMH International, vol. 12(3), pages 32-52.
    6. Mei-Se Chien & Nur Setyowati & Chih-Yang Cheng, 2020. "Asymmetric Effects Of Exchange Rate Volatility On Bilateral Trade Between Taiwan And Indonesia," The Singapore Economic Review (SER), World Scientific Publishing Co. Pte. Ltd., vol. 65(04), pages 857-888, June.
    7. James Temitope Dada, 2020. "Asymmetric effect of exchange rate volatility on trade in sub-Saharan African countries," Journal of Economic and Administrative Sciences, Emerald Group Publishing Limited, vol. 37(2), pages 149-162, July.
    8. Maphalle, Mohakanegi Isaac & Oyekale, Abayomi Samuel, 2023. "Effect of Real Exchange Rates on Fruit Exports in South Africa: A Vector Error Correction Model (VECM) Approach," Journal of Agribusiness and Rural Development, University of Life Sciences, Poznan, Poland, vol. 68(2).
    9. Sharma, Chandan & Pal, Debdatta, 2018. "Exchange rate volatility and India's cross-border trade: A pooled mean group and nonlinear cointegration approach," Economic Modelling, Elsevier, vol. 74(C), pages 230-246.
    10. Sung-Ko Li & Chun-Kei Tsang, 2020. "The Impacts Of Biased Resource Allocation On The Effectiveness Of Official Development Assistance," The Singapore Economic Review (SER), World Scientific Publishing Co. Pte. Ltd., vol. 65(01), pages 239-256, March.
    11. Chandan Sharma & Debdatta Pal, 2019. "Does Exchange Rate Volatility Dampen Imports? Commodity-Level Evidence From India," International Economic Journal, Taylor & Francis Journals, vol. 33(4), pages 696-718, October.
    12. Naveed, Hafiz Muhammad & HongXing, Yao & Memon, Bilal Ahmed & Ali, Shoaib & Alhussam, Mohammed Ismail & Sohu, Jan Muhammad, 2023. "Artificial neural network (ANN)-based estimation of the influence of COVID-19 pandemic on dynamic and emerging financial markets," Technological Forecasting and Social Change, Elsevier, vol. 190(C).
    13. Christelle Meniago & Joel Hinaunye Eita, 2017. "Does Exchange Rate Volatility Deter Trade in Sub-Saharan Africa?," International Journal of Economics and Financial Issues, Econjournals, vol. 7(4), pages 62-69.
    14. Hock Tsen Wong, 2017. "Exchange rate volatility and bilateral exports of Malaysia to Singapore, China, Japan, the USA and Korea," Empirical Economics, Springer, vol. 53(2), pages 459-492, September.
    15. Rossanto Dwi Handoyo & Agustin Dwi Prihandika Sari & Kabiru Hannafi Ibrahim & Tamat Sarmidi, 2022. "The Volatility of Rupiah Exchange Rate Impact on Main Commodity Exports to the OIC Member States," Economies, MDPI, vol. 10(4), pages 1-18, March.
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    More about this item

    Keywords

    Real imports; Exchange rate volatility; Asymmetric cointegration; Financial crisis;
    All these keywords.

    JEL classification:

    • F1 - International Economics - - Trade
    • F10 - International Economics - - Trade - - - General

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