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The effects of exchange rate volatility on trade flows in BRICS countries

Nelson Mandela University All Rights Reserved Open Access

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  • Title:
    The effects of exchange rate volatility on trade flows in BRICS countries
  • Author: Domela, Lehlohonolo
  • Subjects: Economic development -- BRIC countries ; Foreign exchange rates--Developing countries
  • Description: This study investigates the impact of exchange rate volatility on trade flows in Brazil, Russia, India, China and South Africa (BRICS), for the period 2009:M1 to 2019: M12. The generalized autoregressive conditional heteroskedasticity (GARCH) and the exponential-GARCH are used to generate two different measures of exchange rate volatility. To capture the short and long-term symmetric and asymmetric relationships, the linear and nonlinear autoregressive distributed lag (ARDL) models were employed. The ARDL bounds test detected the long-run relationships in all estimated models excluding China’s exports model. The linear and nonlinear ARDL coefficients provided mixed results regarding the influence of exchange rate volatility on BRICS’ trade flows. However, from the general perspective, the majority of the estimated coefficients indicate that the exchange rate volatility positively affects both imports and exports in the short and long-run. Moreover, the long-run asymmetric relationships are found in all the models regardless of the volatility measure applied excluding Brazil where no asymmetric effects were identified. The Granger causality test revealed that volatility granger causes imports in most BRICS economies. Accordingly, this study recommends that BRICS economies should adopt effective exchange rate systems that are considerate of other macroeconomic variables found to have a significant impact on trade flows, irrespective of the volatility levels instigated as there is a positive relationship between exchange rate volatility and trade in BRICS nations. Moreover, through further monetary policy interactions, the BRICS cohort can establish a strong currency union to rival the US dollar and euro in the foreign exchange market to hence trade within the bloc and internationally. Thesis (MA) -- Faculty of Business and Economic science, 2022
  • Publisher: Nelson Mandela University
  • Creation Date: 2022
  • Format: 1101 pages
  • Language: English
  • Source: South East Academic Libraries System Digital collections of Nelson Mandela University
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