Exchange-rate volatility and foreign trade: Evidence from thirteen LDC's

This article investigates empirically the impact of real exchange-rate volatility on the export hows of 13 less developed countries (LDC's) over the quarterly period 1973-1996. Estimates of the cointegrating relations are obtained using Johansen's multivariate procedure. Estimates of the short-run dynamics are obtained for each country using the error-correction technique. The major results show that increases in the volatility of the real effective exchange rate, approximating exchange-rate uncertainty, exert a significant negative effect on export demand in both the short-run and the long-run in each of the 13 LDC's. These effects may result in significant reallocation of resources by market participants.