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Effects of Real Exchange Rate Volatility on Trade: Empirical Analysis of the United States Exports to BRICS

Author

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  • E. M. Ekanayake

    (College of Business and Entrepreneurship, Bethune-Cookman University, 640 Dr. Mary McLeod Bethune Blvd., Daytona Beach, FL 32114, USA)

  • Amila Dissanayake

    (Department of Economics, University of Colombo, Colombo 00700, Sri Lanka)

Abstract

This paper analyzes the effects of real exchange rate volatility on the United States’ exports to BRICS. It focuses on the top 20 export products (defined by the 2-digit Harmonized System codes) from the United States to Brazil, Russia, India, China, and South Africa, and uses quarterly data for period from 1993Q1 to 2021Q2. The specified panel regression model was first estimated using three estimation methods, namely, the Panel Least Squares, the Panel Fully Modified Least Squares (FMOLS), and Panel Dynamic Least Squares (DOLS). In addition, to estimate the short-run and long-run effects of real exchange rate volatility on exports, it also uses the method of the Autoregressive Distributed Lag (ARDL) approach to cointegration analysis and error-correction models. Two measures of exchange rate volatility are used in this study. According to our findings, the levels of foreign economic activity have a positive effect on exports while the real exchange rate has a negative effect on exports. In addition, exchange rate volatility has a negative effect on exports in the long run in all five countries. However, the effects of exchange volatility are found to yield mixed results in the short run regardless of which measure of exchange rate volatility was used.

Suggested Citation

  • E. M. Ekanayake & Amila Dissanayake, 2022. "Effects of Real Exchange Rate Volatility on Trade: Empirical Analysis of the United States Exports to BRICS," JRFM, MDPI, vol. 15(2), pages 1-21, February.
    • Handle: RePEc:gam:jjrfmx:v:15:y:2022:i:2:p:73-:d:746088
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    Cited by:

    1. Izunna Chima Anyikwa & Lehlohonolo Domela, 2022. "Asymmetric effects of exchange rate volatility on trade flows in BRICS economies," Studies in Economics and Econometrics, Taylor & Francis Journals, vol. 46(3), pages 224-247, July.

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