Exchange Rate Policy and Export Performance in Efficiency-Driven Economies

Increased globalisation of trade, coupled with rising competition, has led a growing number of firms to search beyond their traditional domestic markets for business opportunities in recent years. As a result, export-led growth has gained renewed attention amongst policy makers, particularly amongst those in industrialising nations, or so-called efficiency-driven economies. This search for drivers of economic growth has gained further impetus from the economic pressures brought about by the fall in growth in advanced markets following the global financial crisis coupled with the rising competitive of industrialising emerging economies. A common policy proposal amongst countries trying to catch up in terms of competitiveness is to weaken the home country exchange rate as a means to stimulate exports. Past research on the impact of such policy prescriptions shows mixed results. Consequently, and given the renewed emphasis on this policy lever, this research examines the impact of exchange rate on export performance in a sample of nine efficiency-driven economies over the period 1990 to 2009. These economies that we survey include Brazil, the Dominican Republic, Malaysia, Mauritius, Mexico, Peru, South Africa, Thailand and Turkey, which all have floating exchange rate arrangements during the survey period. Panel data models using a fixed-effects method have been applied in this research, the results of which suggest that a weakening of the exchange rate does not necessarily improve export performance. To the contrary, for the nine countries surveyed, export growth seems to be associated with stronger exchange rates. Whilst our results suggest that the lag effect of exchange rate movement on export performance is slightly more pronounced, the relationship nevertheless remains statistically insignificant