Does Exchange Rate Volatility Discourage International Trade? A Meta-Regression Analysis

32 Pages Posted: 13 May 2012

See all articles by Mekbib Haile

Mekbib Haile

University of Bonn - Center for Development Research (ZEF)

Geoff T. Pugh

Staffordshire University Business School, UK

Date Written: April 10, 2011

Abstract

Since the breakdown of the Bretton Woods agreement, the trade effect of exchange rate variability (ERV) has been contentious. However, neither the theoretical nor the empirical literature provides unambiguous guidance on the trade effect of ERV. This article applies meta-regression analysis to the empirical literature and finds evidence of: modest publication bias; a range of authentic empirical effects that are highly conditional, even with respect to sign and, correspondingly, pronounced heterogeneity in the reported results. Investigation of this heterogeneity reveals that the results are significantly influenced both by authors' modelling strategies and by the contexts of their investigations. In particular, researchers are most likely to find an adverse trade effect by investigating low-frequency real exchange variability and trade between less developed economies, hence, beyond the reach of hedging opportunities (as suggested by previous studies). In general, our most important advice for policy makers is that economic research does not reveal a single representative effect size.

Keywords: exchange rate variability, international trade, currency hedging, meta-regression analysis, publication bias

JEL Classification: F31, F41

Suggested Citation

Haile, Mekbib and Pugh, Geoff T., Does Exchange Rate Volatility Discourage International Trade? A Meta-Regression Analysis (April 10, 2011). Journal of International Trade and Economic Development, pp. 1-30, October 2011. Available at SSRN: https://ssrn.com/abstract=2056859

Mekbib Haile (Contact Author)

University of Bonn - Center for Development Research (ZEF) ( email )

Walter-Flex-Str. 3
Bonn, NRW 53113
Germany

Geoff T. Pugh

Staffordshire University Business School, UK ( email )

Leek Road
Stoke-on-Trent, ST4 2DF
United Kingdom
01782 204092 (Phone)

HOME PAGE: http://www.staffs.ac.uk/staff/profiles/gtp1.jsp

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