Export dynamics, exchange rate volatility, and economic stability: evidence from Asia-Pacific economies

Abstract

The study examines the Export-Led Growth (ELG) hypothesis across five key Asia-Pacific countries- China, India, Indonesia, Malaysia, and South Korea, from 1990 to 2021. Addressing gaps in the existing research works, which often focus on single-country analyses and overlook regional interdependencies and post-2008 macroeconomic dynamics, this study investigates the combined effects of exports, exchange rate volatility, and inflation on Gross Domestic Product (GDP) growth. It finds robust and long-term relationships between GDP and exports, validating the ELG hypothesis using advanced econometric techniques, including panel cointegration tests (Pedroni, Kao, Westerlund), Fully modified Ordinary Least Squares (FMOLS) and DOLS Dynamic Ordinary Least Squares (DOLS) methods. Exchange rate volatility negatively impacts GDP, while inflation shows a positive correlation. Stable exchange rates are vital for sustainable growth. The research findings have substantial policy implications. Policymakers should consider implementing policies to facilitate export growth, such as providing subsidies, tax incentives, and easing regulations. Stable economic policies can promote a resilient environment, improving these countries overall economic welfare and stability. This research addresses endogeneity and robustness issues, providing valuable insights into trade-growth dynamics, and informs future studies on larger datasets or more extended periods.

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