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

Year 2017, , 8 - 16, 30.03.2017

Yaw Frimpong Ofori Atta

https://doi.org/10.17261/Pressacademia.2017.381

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

References

• Arize, A.C., 1997, “Conditional exchange-rate volatility and the volume of foreign trade: Evidence from seven industrialized countries”, Southern Economic Journal, pp.235-254.
• Arize, A.C., Osang, T. and Slottje, D.J., 2000, “Exchange-rate volatility and foreign trade: evidence from thirteen LDC's”, Journal of Business & Economic Statistics, 18(1), pp.10-17.
• Auboin, M. and Ruta, M., 2011, “The relationship between exchange rates and international trade: a review of economic literature”, WTO Staff Working Paper, ERSD-2011-17.
• Chawla, C.P., 2011, “Understanding the impact of exchange rate fluctuation on the competitiveness of business”, Journal of Opinion, 1, no. 1.
• Dincer, N., & Kandil, M. 2011, “The effects of exchange rate fluctuations on exports: A sectoral analysis for Turkey”, The Journal of International Trade & Economic Development, 20(6), pp. 809-837.
• Frankel, J.A., 2003, “Experience of and lessons from exchange rate regime in emerging economies”, National Bureau of Economic Research (NBER) Working Paper, No. 10032.
• Frieden, J., & Zedillo, E. 2008, “Globalization and exchange rate policy”. The Future of Globalization”, New York: Routledge, pp. 344-357.
• Dell'Arricia, G. 1999, “Exchange Rate Fluctuations and Trade Flows”, IMF Staff Papers, Vol. 46, No. 3, pp. 315-334.
• Goldstein, M. 1984, “The exchange rate system: Lessons of the past and options for the future”, IMF occasional Paper No. 30.
• Gonenc, H., Buyukkara, G. Z., & Koyuncu, O. 2012, “Balance Sheet Exchange Rate Exposure, Investment and Firm Value: Evidence from Turkish Firms”, Central Bank Review, 3(2), pp. 1-25.
• Gujarati, D.N. & Porter, D.C., 2009, “Causality in economics: The Granger causality test. Basic Econometrics”, Tata McGraw-Hill Education, pp.652-658.
• Hooper, P., & Kohlhagen, S. W. 1978, “The effect of exchange rate uncertainty on the prices and volume of international trade”, Journal of International Economics, 8(4), pp. 483-511.
• International Monetary Fund. Research Dept. 1984, “Exchange rate volatility and world trade”, IMF occasional Paper No. 28.
• Kamil, H. 2012, “How Do Exchange Rate Regimes Affect Firms' Incentives to Hedge Currency Risk? Micro Evidence for Latin America”, IMF Working Paper No. 12/69.
• Kandil, M., Berument, H., & Dincer, N. N. 2007, “The effects of exchange rate fluctuations on economic activity in Turkey”, Journal of Asian Economics, 18(3), pp. 466-489.
• Kandil, M., & Mirzaie, A. 2002, “Exchange rate fluctuations and disaggregated economic activity in the US: theory and evidence”, Journal of International Money and Finance, 21(1), pp. 1-31.
• Kapila, P., & Hendrickson, C. 2001, “Exchange rate risk management in international construction ventures”, Journal of Management in Engineering,17(4), pp. 186-191.
• Kollmann, R. 2001, “The exchange rate in a dynamic-optimizing business cycle model with nominal rigidities: a quantitative investigation”, Journal of International Economics, 55(2), pp. 243-262.
• Lessard, D. R., & Lightstone, J. B. 1986, “Volatile Exchange-Rates Can Put Operations At Risk”, Harvard Business Review, 64(4), pp. 107-114.
• Li, Y. A., Xu, J., & Zhao, C. C. 2015, “Import response to exchange rate fluctuations: A micro-level investigation”, HKUST IEMS Working Paper No. 2015-27.
• Maskus, K. E. 1986, “Exchange rate risk and US trade: a sectoral analysis”, Economic Review, 71(3), pp. 16-28.
• Medhora, R. 1990, “The effect of exchange rate variability on trade: The case of the West African Monetary Union's imports”, World Development, 18(2), pp. 313-324.
• Nicita, A., 2013, “Exchange rates, international trade and trade policies”, International Economics, 135, pp.47-61.
• Obstfeld, M., Cooper, R. N., & Krugman, P. R. 1985, “Floating exchange rates: experience and prospects”, Brookings Papers on Economic Activity, pp. 369-464.
• Ozturk, I. 2006, “Exchange rate volatility and trade: A literature survey”, International Journal of Applied Econometrics and Quantitative Studies, 3(1).
• Özkanlı, Ö., Benek, S., & Akdeve, E. 2006, “Export barriers of small firms in Turkey: A study of Ankara-Ivedik Industrial District”, Problems and Perspectives in Management, 4(3), pp. 78-90.
• Clark, P., Tamirisa, N., Wei, S.J., Sadikov, A. and Zeng, L., 2004, “Exchange rate volatility and trade flows-some new evidence”, IMF Occasional Paper, 235.
• Solakoglu, M. N., & Demir, N. 2009, “Exchange-Rate Exposure and the Financial Sector”, Journal of Economic and Social Research, 11(2), pp. 29-42.
• Teoh, H. Y., & Er, M. 1988, “Impact of floating exchange rates on company risk management practices: The Australian experience”, School of Accounting & Finance, University of Wollongong, Working Paper 1a.
• Wang, Y. Y. 2002, “Fluctuations of Exchange Rate on the Valuation of Multinational Corporations as Taiwan’s Samples”, Journal of Global Business Management.