Exchange rate volatility and export growth in India: An ARDL bounds testing approach

Abstract

This paper empirically investigates the impact of exchange rate volatility on the real exports in India using the ARDL bounds testing procedure proposed by Pesaran et al. (2001). Using annual time series data, the empirical analyses has been carried out for the period 1970 to 2011. The study results confirm that real exports are cointegrated with exchange rate volatility, real exchange rate, gross domestic product and foreign economic activity. Our findings indicate that the exchange rate volatility has significant negative impact on real exports both in the short-run and long-run, implying that higher exchange rate fluctuation tends to reduce real exports in India. Besides, the real exchange rate has negative short-run and positive long-run effects on real exports. The empirical results reveal that GDP has a positive and significant impact on India’s real exports in the long-run, but the impact turns out to be insignificant in the short-run. In addition, the foreign economic activity exerts significant negative and positive impact on real exports in the short-run and long-run, respectively.

Keywords

• Exchange rate volatility
• Real exports
• India
• ARDL-UECM
• Cointegration
• CUSUM
• CUSUMQ