Thai Export under Exchange Rate Volatility: A Case Study of Textile and Garment Products

Abstract

This research intends to determine impacts of exchange rate volatility on Thai export quantity in textile and garment products. In order to correctly measure export volume, this study computed export quantity as dependent variable rather than export value by constructing composite Thailand export quantity index through the disaggregation of export value and export price. Three alternative methods of volatility determination, including, quarterly variance, univariate GARCH model of spot exchange rate, and the bivariate GARCH models of spot and forward exchange rate, were applied in determining exchange rate risk. Panel data with fixed effects and random effects models were employed in analyzing impacts of export price and exchange rate risk on Thai export quantity. Also, the study included subprime crisis as dummy variable in measuring the impacts of subprime crisis. The estimated results indicate that the bivariate GARCH model is the most appropriated method in determining the exchange rate volatility. The empirical results revealed that the Thai export in textile and garment products are significantly influenced by its export price and the exchange rate volatility. Higher exchange rate volatility can cause decreasing in export quantity. Furthermore, the study also found significant impacts of the subprime crisis on Thailand economy through the sharp drop in Thai textile and garment export during this period.