7th INTERNATIONAL CONFERENCE on ECONOMICS and FINANCE , İstanbul, Turkey, 5 - 06 October 2023, pp.149-152
The Impact of Exchange Rate Fluctuations on Exports
While the importance of exports has been increasing, over time, many developing countries have enhanced their economic development efforts by increasing exports. Especially after the Second World War, a key component of ensuring economic stability was having sufficient foreign exchange resources. Exports are at the forefront of these foreign exchange resources. On the other hand, an important part of the fluctuations in the basic macroeconomic stability indicators in many countries has been the exchange rates fluctuations. This situation has become an indicator of economic crisis for many developing countries. In countries with a fixed exchange rate system, the determination of the price of foreign exchange by government interventions is referred to as devaluation, while in countries with a flexible exchange rate system, the foreign exchange markets fulfil this devaluationist effect. As a developing country, Turkey also experiences fluctuations in exchange rates from in places as an indicator of economic crises and instability in financial markets. As a result of these fluctuations, especially after the 1980s, as a country implementing an export-oriented industrialization strategy, the issue of how this situation affects exports has remained important. Due to the price-based competitive advantage of exports as a result of excessive appreciation of exchange rates or excessive depreciation of the national currency, two types of effects on exports are expected. One is an increase in exports of currently tradable goods, while the other is seen as new opportunities arising from the introduction of new goods to the world market as a result of the expansion of the range of tradable goods. However, it is important to keep in mind that there are many constraints to this realization. Some of these constraints are the domestic contribution rate in export products, recognition in foreign markets, elasticity of supply of export products, production factors stock, fluctuations in exchange rates of rival countries, and inflation rates. The main objective of this study is to determine whether exchange rate changes (essentially the depreciation of the national currency) affect exports. In this respect, it is aimed to reveal whether there is a causality relationship between real effective exchange rates and exports. To this end, the average, developing and developed countries based values of the real effective exchange rate were obtained from the Electronic Data Distribution System (EVDS) of the Central Bank of the Republic of Turkey (CBRT). The relationship between exchange rates and export values obtained from the Turkish Statistical Institute (TurkStat) is analysed with Eviews 12.0 package program. Since nominal exchange rates do not show the relative price differences between countries, the Real Effective Exchange Rate is calculated as an indicator of the real level of the Turkish Lira (TL). The nominal effective exchange rate (NEER) is the weighted average value of the Turkish Lira relative to a basket of currencies of countries with significant shares in Turkey's foreign trade. Weights are determined using bilateral trade flows. In this context, a total of 60 countries are taken into account in trade weighting, 28 of which are categorized as developed countries whereas 32 are categorized as developing countries. The real effective exchange rate (REER) is obtained by adjusting for the relative price effects in the NEER. The real effective exchange rate indices calculated by the CBRT are obtained by taking the weighted geometric average of the ratio of the price level in Turkey to the price level in the countries with which we trade. Since the base year 2003=100 is taken as the base year in the series obtained according to the CBRT data, values below this value indicate that the national currency depreciated and thus our export goods became cheaper in dollar terms in foreign markets, while values above this value indicate that the national currency appreciated and thus the foreign sales price of our export goods increased. In this study, it is aimed to examine whether fluctuations in real effective exchange rates based on average, developing and developed countries affect exports for the periods 2012:07-2017:12 and 2018:01-2023:07. First, the Augmented-Dickey Fuller (ADF) test is used to examine whether the series contain unit roots and it is concluded that all variables are stationary in the first difference. Then, the long-run relationship of the series is examined with Engle-Granger (1987) cointegration test. The cointegration results from the period 2012:07-2017:12 showed that there is no significant relationship between the average-based real effective exchange rate and exports. This finding remained the same where we repeated the analyses for developed and developing countries based REER. Therefore, it is concluded that there is no significant relationship between exports and exchange rates for this period. The same analyses are repeated for the period 2018:01-2023:07. Results showed that there is a significant long-run relationship between exchange rates and exports. This finding is robust to different definition of REER (average, developed and developing based). Therefore, it is concluded that the real effective exchange rates affect exports in the second period. Accordingly, it can be said that it is not possible for exchange rate changes to have a positive effect on exports in every period and it is unreasonable to expect that a price-based increase in competition in exports will increase exports. Therefore, for export growth, other factors should be taken into account, economic policy should be adopted according to conjunctural characteristics and heterodox policies should be adopted instead of orthodox policies.
Keywords: Exchange Rate, Exports, Cointegration
Jel Codes: F30, F31, C01, C22