The Effect of exchange rate volatility on international trade flow: a meta- regression analysis

Course ID
Ethiopian Economics Association (EEA)
Mekbib G/tsadik


Following the break down of the Bretton Woods agreement in the early 1970s, the trade effect of exchange rate variability (ERV) has been an issue in international economics. However, neither the purely theoretical nor the empirical literature provides uniform evidence on the trade effect of ERV. This paper applies meta-regression analysis (MRA) to the empirical literature. The results reveal that, though modestly, the estimated effect sizes may suffer from publication bias. Although the results show the existence of an overall authentic trade effect of ERV beyond publication bias, its size is very small and does not yield overwhelming evidence even on the sign of the effect. Most strikingly, the empirical effect is estimated with pronounced heterogeneity. Investigation of this heterogeneity reveals that the results are significantly influenced both by authors’ modelling strategies and by the contexts of their investigations. MRA evidence on the pronounced heterogeneity of the empirical findings may be instructive for policy: first, by establishing that average trade effects are not sufficiently robust to generalize across countries; and second, by suggesting the importance of hedging opportunities – hence of financial development – for trade promotion. In general, our most important advice for policy makers is that economic research does not reveal a single representative effect size

Corporate Author:Ethiopian Economic Association/Ethiopian Economic Policy Research Institute (EEA/EEPRI)
Publisher:Ethiopian Economic Association/Ethiopian Economic Policy Research Institute (EEA/EEPRI)
Primary Descriptors:Foreign exchange market

Secondary Descriptor:International economic integration

Geographic Descriptors:Ethiopia
Cataloge Date:03/02/2013
Broad Subject heading:Foreign exchange rates
Call Number:WPN 1/2011
Serial Key Title:EEA/EEPRI working paper
Publication catagory:Working paper
Content type:EEA Publication
Publication date:2013-03-02 00:00:00
Forum or Discussion date:2013-03-02 00:00:00
PDF file: WP 1 2011_Mekbib Gtsadik_The Effect of exchange rate volatility on international trade flow a meta regression analysis.pdf
Place of publication:Addis Ababa, Ethiopia
Type of material:Periodical
Author: Mekbib G/tsadik

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