Please use this identifier to cite or link to this item: https://hdl.handle.net/10419/319558 
Authors: 
Year of Publication: 
2021
Citation: 
[Journal:] International Trade, Politics and Development (ITPD) [ISSN:] 2632-122X [Volume:] 5 [Issue:] 1 [Year:] 2021 [Pages:] 32-50
Publisher: 
Emerald, Leeds
Abstract: 
Purpose - Exchange rate uncertainty leads to an indecisive environment for imports and exports that would condense international trade, foreign direct investment, trade earnings, trade volumes, economic growth and welfare. This study aims to examine, empirically, the effect of exchange rate uncertainty on bilateral trade performance, focusing on eight SAARC member economies using the popular modified gravity model of trade. Design/methodology/approach - The paper includes eight SAARC members - Afghanistan, Bangladesh, Bhutan, Maldives, Nepal, Pakistan and Sri Lanka panel data set over the period 2005-2018. The authors consider both standardized value (standard deviation) and conditional variance model to determine volatility of exchange rate. Primarily, ordinary least squares, random effects and fixed effects estimation techniques are employed to investigate the impact of exchange rate volatility. Endogeneity and robustness of the findings have been tested using the simultaneity-adjusted model and dynamic panel data two-step system GMM estimation techniques. Findings - Empirical findings endorse the view that exchange rate volatility lowers trade flows in the SAARC regions. However, this adverse effect of exchange rate uncertainty on trade is pretty small. The negative correlation between exchange rate volatility and bilateral trade remains consistent and significant after controlling of simultaneous causality, autocorrelation, year effects, country-pair heterogeneity and endogeneity irrespective of panel data estimation techniques and different measures of volatility. Originality/value - The present paper is original work.
Subjects: 
Gravity model
SAARC
Bilateral trade
Exchange rate uncertainty
Persistent Identifier of the first edition: 
Creative Commons License: 
cc-by Logo
Document Type: 
Article

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