Effects of exchange rate volatility on exports: evidence from india
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Explanation:
Effects of Exchange Rate Volatility on Exports: Evidence from India
Sidheswar Panda ([email protected]) and Ranjan Mohanty ([email protected])
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Economics Bulletin, 2015, vol. 35, issue 1, 305-312
Abstract: This study empirically examines the effects of real exchange rate volatility on India's exports using time series data for the period from 1970-71 to 2011-12. This study uses a simple rolling standard deviation as a measure of exchange rate volatility and implements the Johansen cointegration technique to understand the long run relationship among the variables. This study finds that there exists one co-integrating the relationship among exports, real exchange rate volatility and World GDP. India's export volume is positively related to the World GDP. India's export volume is negatively affected by its own real exchange rate volatility. The empirical results indicate that a moderation in the exchange rate volatility can increase the export volume in case of India.
Answer:
When foreign exchange comes to India than it brings foreign currency. It means that supply of foreign exchange will increase in India. And when supply increases with demand curve being static than Indian currency will appreciates and foreign exchange rate will fall. In addition, an increase in a country's currency will lead to an improvement in its terms of trade, which are the ratio of export to import prices. It is also happens that an increase in FDI leads to higher growth rates in financially developed countries compared to rates observed in financially poor countries. Local conditions, such as the development of financial markets and the educational level of a country, affect the impact of FDI on economic growth.