Real Exchange Rate Variation and Export Revenue: Asian Evidence

Exchange rate movements affect exports through depreciation (appreciation) and risk. Depreciation may raise exports but exchange rate risk could offset the positive effect. This paper investigates the net effect for eight Asian countries using a dynamic conditional correlation bivariate GARCH-M model that simultaneously estimates time-varying correlation and exchange rate risk. Depreciation and export revenue are positively related, as expected, for eight countries, but its contribution to export growth is weak. Exchange rate risk affects export revenue negatively or positively in sample countries except Korea. It contributes positively to export growth in Malaysia and the Philippines, leading to positive net effects. The risk has a negative impact for five countries, resulting in a negative net effect in Japan, Singapore, Taiwan, Thailand and a zero net effect in Indonesia. Korea has no significant exchange rate risk estimates and an insignificant net effect. While in the countries the negative impact of exchange rate risk offsets, or even dominates, any positive contribution of depreciation, to reduce exchange rate fluctuation should be the goal of foreign exchange market intervention.