The Impact of Exchange Rate Volatility on Exports in Vietnam: A Bounds Testing Approach

Abstract

This paper investigates the impact of exchange rate volatility on exports in Vietnam using quarterly data from the first quarter of 2000 to the fourth quarter of 2014. The paper applies the autoregressive distributed lag (ARDL) bounds testing approach to the analysis of level relationships between effective exchange rate volatility and exports. Using the demand function of exports, the paper also considers the effect of depreciation and foreign income on exports of Vietnam. The results show that exchange rate volatility negatively affects the export volume in the long run, as expected. A depreciation of the domestic currency affects exports negatively in the short run, but positively in the long run, consistent with the J curve effect. Surprisingly, an increase in the real income of a foreign country actually decreases Vietnamese export volume. These findings suggest some policy implications in managing the exchange rate system and promoting exports of Vietnam.