The Impact of Real Exchange Rate Volatility on Exports to U.S.: A Comparison between Developed and Export-oriented Less Developed Countries

Abstract

Real exchange rate volatility on exports is an important topic in international trade and finance. However, litter studies analyzed whether the effect of real exchange rate volatility on export will change overtime. This paper categorizes the countries into two groups, namely the developed countries and export oriented less developed countries (LDCs), and divided the whole time period into two sub-periods, i.e. in order to study whether the effects of volatility on exports to U.S. were different for countries with different economic characteristics and whether it changed over time. At the end, this paper discovered that the real exchange rate volatility had a bigger impact on developed countries than export-oriented LDCs, and the impact had increased in the later period. The weaker flexibility in distribution network of firms also explained why export-oriented LDCs' exports are less sensitive to real exchange rate volatility.