An Analysis of the Impact of Exchange Rate on Trade of BIMSTEC Countries
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Abstract
Purpose: This paper aims to explore the impact and long-term shocks of exchange rates on import and export of the BIMSTEC Countries.
Methodology: The study uses quarterly data from 2011-2022 on trade and exchange rates in BIMSTEC countries from various sources and employs tests like VAR Granger Causality Test, Regression Analysis and ARDL Cointegration.
Findings: The study analysed the impact of import and export grangers on the exchange rate in Bangladesh, India, Bhutan, Nepal, and Myanmar. It found that import and export grangers cause the exchange rate, while only export grangers significantly impact the exchange rate on export. In contrast, Nepal, Sri Lanka, and Thailand do not have granger causality between import, export, and exchange rate. The ARDL model revealed that for India, Bangladesh, Bhutan, and Nepal, cointegration exists, while for Myanmar and Thailand, cointegration does not exist. In Sri Lanka, the ARDL model becomes inconclusive.
Originality: The study explores the area of Exchange Rate and Trade which are the major economic factors for BIMSTEC countries, paving the way for further research on other countries with different time periods and economic growth factors.