PROBLEMS FACED BY INTERNATIONAL FIRMS IN DEVELOPING COUNTRIES DUE TO EXCHANGE RATE FLUCTUATIONS: A CRITICAL STUDY OF INTERNATIONAL FIRMS IN TURKEY

Abstract

Purpose- Exchange rate fluctuations and instability have rekindled interest of researchers in the subject of relationship between international trade and exchange rate. This study focused on the impact of exchange rate on international trade churning out various problems faced by international firms in developing countries specifically in Turkey.  

Methodology- A bi-variate framework was employed in the study for exchange rate and foreign trade. The study used the VAR approach and VAR granger causality in the identification of long run co-integration and causality. Data used was between 1975 and 2014.

Findings- It was found that there was no directional granger causality between exchange rate and foreign trade in Turkey. However, diverse dynamic linkages were found between exchange rate and foreign trade in Turkey using Impulse Response Functions.

Conclusion- The study concluded that, international firms in Turkey are not singularly motivated by exchange rate increase or decrease to engage in international trade. 

Keywords

• Exchange rate,foreign trade,international firms,VAR,impulse response function

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