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The Influence of Exchange Rate Volatility on International Trade in Emerging Economies

Book Chapter

Authors: S. Ramesh; A. Anil Kumar; P. Malathi Latha; Vijaya Kittu Manda

DOI: https://doi.org/10.4018/979-8-3693-9765-7.ch008

Book Name: Monetary Dynamics and Socio-Economic Development in Emerging Economies

ISBN: ISBN13: 9798369397657|ISBN13 Softcover: 9798369397664|EISBN13: 9798369397671

Publisher: IGI Global, USA

Editor(s): Cláudio Canguende-Valentim, Mara Madaleno, Samuel Carlos Victorino, and João Jungo

Book Chapter Number: 8

Publication Date: August 12, 2025

Pages: (pages 221 - 251; 32 pages)

Book Chapter Link on Publisher Website

Book Link on Publisher Website

Abstract: International trade facilitates efficient resource allocation and economic growth but is highly sensitive to external factors such as Exchange Rate Fluctuations (ERV). ERV represents frequent and unpredictable changes in currency values that can increase transaction costs, reduce competitiveness in export markets, and discourage cross-border investments. This research investigates the relationship between ERV and International Trade in Emerging economies. The gravity model of trade model is used to analyze panel data collected from 20 emerging market countries over 2000-2022 to examine the effect of ERV on export and import flows. The results indicate a significant negative impact of exchange rate volatility on exports and imports, with exports being more sensitive to volatility. Macroeconomic stability and financial development are found to moderate the adverse effects of volatility on trade flows. These findings have important implications for policymakers in emerging economies seeking to promote international trade and mitigate the risks associated with exchange rate fluctuations.

Keywords: Exchange rate volatility, international trade, emerging economies, gravity model, exports, imports, macroeconomic stability, financial development, forex

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