The effects of exchange rate variability on international trade: a Meta-Regression Analysis

Abstract

The trade effects of exchange rate variability have been an issue in international economics for the past 30 years. The contribution of this paper is to apply meta-regression analysis (MRA) to the empirical literature. On average, exchange rate variability exerts a negative effect on international trade. Yet MRA confirms the view that this result is highly conditional, by identifying factors that help to explain why estimated trade effects vary from significantly negative to significantly positive. MRA evidence on the pronounced heterogeneity of the empirical findings may be instructive for policy: first, by establishing that average trade effects are not sufficiently robust to generalise across countries; and, second, by suggesting the importance of hedging opportunities - hence of financial development - for trade promotion. For the practice of MRA, we make a case for checking the robustness of results with respect to estimation technique, model specification and sample.