The Impact of Real Effective Exchange Rate on Turkish Export Performance: An ARDL Application

Year 2024, Volume: 4 Issue: 2, 1 - 11, 30.12.2024

Melisa Aydaş , Bilge Canbaloğlu

https://doi.org/10.61725/abj.1562664

Abstract

This study investigates the impact of the real effective exchange rate (REER) on Turkiye's aggregate export performance from January 2014 to April 2024, alongside the influences of economic growth and inflation which are vital macroeconomic indicators. Utilizing monthly data, the autoregressive distributed lag (ARDL) bounds-testing approach is employed to assess both long-run and short-run effects of given variables on the exports. The findings reveal significant negative and significant effect of an increasing REER on Turkiye's export performance, indicating that a stronger Turkish lira reduces export competitiveness. Conversely, economic growth positively and significantly affects exports, suggesting that Turkiye’s economic growth fosters export levels, and this provides an empirical finding for growth-led export hypothesis in Turkiye. On the other hand, the effect of inflation on Turkish export performance is found as positive but insignificant. The short-run analysis, through the error correction model (ECM), highlights that the model returns to long-term equilibrium after disturbances. These results underscore the negative effect of appreciation of Turkish lira in real terms on exports and the positive role of economic growth in boosting export performance, offering insights for policymakers on managing exchange rate policies and fostering economic growth.

Keywords

Real Effective Exchange Rate, Export Level, Economic Growth, Inflation, ARDL Model

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