THE IMPACT OF EXCHANGE RATE VOLATILITY ON INTERNATIONAL TRADE IN DEVELOPING COUNTRIES: EVIDENCE FROM TURKIYE

Abstract

Purpose- The purpose of this study is to examine how exchange rate volatility affects international trade in developing countries, particularly for Turkey. Methodology- The study employs secondary monthly data from data providers like Turkish central bank (TCMB) and Turkish statistical institute (TUIK) website from 01.01.2018 to 31.12.2022 with 60 observations, samples used are exchange rate, consumer price index as independent variables and export as dependent variable. We employed GARCH model while analyzing in E-views 9.0 version in order to estimate the conditional volatility of the exchange rate and consumer price index on the trade volume Findings- The analysis reveals export volume is influenced by a exchange rate volatility. For portfolio managers and policymakers seeking to understand the patterns of global capital flows, these findings have significant implications. Conclusion- based upon the analyisis7Findings it may be concluded that the CPI (Consumer Price Index) has a substantial impact on international trade by affecting the cost of production and prices of products and services. A country's trade balance may suffer as a result of high inflation, which can cause a decrease in exports and a rise in imports. On the other hand, low inflation might result in higher exports and lower imports for a nation, which will improve the country's trade balance. Moreover, by affecting the relative pricing of goods and services across nations, the exchange rate has a considerable effect on international trade. A country's exports become more expensive while its imports get cheaper when its currency appreciates. This might result in a decrease in exports and an increase in imports, which is bad for the country's balance of trade. In contrast, a country's exports become more reasonable priced while its imports become more expensive and when its currency appreciates. It causes an increase in exports and a drop in imports, which has a positive impact on the country's trade balance. Countries can use a variety of initiatives, including enacting laws to regulate currency fluctuations, employing exchange rate hedging techniques, and increasing exports through trade agreements, to manage the effect of currency rate on foreign trade. In order to increase the quality and value of their exports, countries can invest in enhancing their productivity and competitiveness, which can counteract the negative effects of currency changes. Keywords: Exchange rate, consumer price index, international trade, volatility, JEL Codes: M40, M41