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Export Promotion through Exchange Rate Changes: Exchange Rate Depreciation or Stabilization?
Author(s) -
Fang WenShwo,
Lai YiHao,
Miller Stephen M.
Publication year - 2006
Publication title -
southern economic journal
Language(s) - English
Resource type - Journals
SCImago Journal Rank - 0.762
H-Index - 58
eISSN - 2325-8012
pISSN - 0038-4038
DOI - 10.1002/j.2325-8012.2006.tb00723.x
Subject(s) - depreciation (economics) , exchange rate , economics , monetary economics , effective exchange rate , bivariate analysis , offset (computer science) , econometrics , statistics , mathematics , financial capital , computer science , capital formation , programming language , economic growth , human capital
Exchange rate movements affect exports in two ways—rate depreciation and rate variability (risk). A depreciation raises exports, but the associated exchange rate risk could offset that positive effect. The present paper investigates the net effect for eight Asian countries using a dynamic conditional correlation bivariate GARCH‐M model that simultaneously estimates time‐varying correlation and exchange rate risk. Depreciation encourages exports, as expected, for most countries, but its contribution to export growth is weak. Exchange rate risk contributes to export growth in Malaysia and the Philippines, leading to positive net effects. Exchange rate risk generates a negative effect for six of the countries, resulting in a negative net effect in Indonesia, Japan, Singapore, and Taiwan and a zero net effect in Korea and Thailand.