Nonlinear effects of exchange rate volatility on export competitiveness in emerging economies

Abstract

Exchange‑rate volatility is frequently cited as a source of uncertainty that discourages trade, yet empirical evidence about its impact on exports remains mixed. This paper proposes a structured investigation of how exchange‑rate volatility affects export competitiveness in emerging economies using threshold and regime‑switching methodologies. We formulate a clear research question, develop hypotheses, outline data and methodology, and discuss results. The analysis draws on a panel of emerging economies from 1990–2023 and uses export volumes as the dependent variable, real effective exchange‑rate volatility as the principal independent variable, and a range of control variables including real exchange‑rate levels, terms of trade and world demand. Evidence from existing literature indicates that exchange‑rate volatility often has a statistically significant negative effect on exports, that threshold effects may depend on partner income and financial development and that nonlinear models yield more pronounced results than linear ones Our own estimates reinforce these findings and identify volatility thresholds beyond which export competitiveness deteriorates sharply. Policy recommendations include enhancing financial market depth, providing hedging instruments and maintaining prudent macroeconomic frameworks.