Exchange rate impacts on international trade

Economic Annals-ХХI: Volume 190, Issue 5-6(2), Pages: 12-22

Citation information:
Mehtiyev, J., Magda, R., & Vasa, L. (2021). Exchange rate impacts on international trade. Economic Annals-XXI, 190(5-6(2)), 12-22. doi:

Jalil Mehtiyev
PhD Student (Economics),
Doctoral School of Economic and Regional Sciences,
Hungarian University of Agriculture and Life Sciences (MATE)
1 Pater K. Str., Gödöllő, 2100, Hungary

Robert Magda
D.Sc. (Economics), Professor,
Doctoral School of Economic and Regional Sciences,
Hungarian University of Agriculture and Life Sciences (MATE)
1 Pater K. Str., Gödöllő, 2100, Hungary
Professor, Vanderbijlpark Campus,
North-West University
1174 Hendrick Van Eck Boulevard Vanderbijlpark, 1900, South Africa

László Vasa
D.Sc. (Economics), Professor,
Faculty of Economics,
Széchenyi István University
1 Egyetem Str., Győr, H-9026, Hungary
Guest Editor of Economic Annals -XXI for the Volume 190 Issue (5-6(2))’2021 

Exchange rate impacts on international trade

As international trade activities are increased, there are more regulative practices which might be barriers to trade. One of such hindrances is exchange rate volatility that affects trade activities both directly and indirectly. Exchange rate volatility of currencies can affect the trade engagements and as well as the trade balance of a country. One of the implications of the study is that the impacts of monetary policy changes on trade activities can be noticed significantly in the long-term. While impacts on export levels are usually immediate, import levels are changed in long-run. The research analyzes the correlation between inflation and devaluation and clearly states their impacts on trade balance. The case study about devaluation of the currency of Azerbaijan elaborates the impacts of currency volatility on exports which is illustrated and analyzed in this research. Moreover, inflation and devaluation correlations and their impacts on import level of a country are studied through correlation and multiple regression analyses based on the data exported from OECD and World Bank. The results conclude that exchange rate volatility significantly impacts the trade balance in terms of imports and exports. Given the results, exchange rate is a non-trade barrier and affects foreign trade.

Keywords: Devaluation; Exchange Rate; International Trade; Trade Balance

JEL Classification: C10; C34; F10; F18; F20

Acknowledgements and Funding: The authors received no direct funding for this research.

Contribution: The authors contributed equally to this work.

Data Availability Statement: The dataset is available from the authors upon request.



  1. Abuselidze, G. (2017). From devaluation to stagflation (modern challenges, reasons, dangers).
  2. Abuselidze, G. (2019). Modern challenges of monetary policy strategies: Inflation and devaluation influence on economic development of the country. Academy of Strategic Management Journal, 18(4), 1-10.
  3. Aliyeva, U. (2020). The impact of currency devaluation on the banking sector of Azerbaijan.
  4. Arize, A. C. (1997). Conditional exchange rate volatility and the volume of foreign trade: Evidence from seven industrialized countries. Southern Economic Journal, 64(1), 235-254.
  5. Arize, A. C., Osang, T., & Slottje, D. J. (2000). Exchange-Rate Volatility and Foreign Trade: Evidence from Thirteen LDC’s. Journal of Business & Economic Statistics, 18(1), 10-17.
  6. Bacchetta, P., & van Wincoop, E. (2000). Does exchange rate stability increase trade and welfare? American Economic Review, 90(5), 1093-1109.
  7. Bostan, I., Toderașcu, C., & Firtescu, B. (2018). Exchange Rate Effects on International Commercial Trade Competitiveness. Risk and Financial Management, 11(2), 19.
  8. Center for Economic and Social Development (CESD). (2015). Devaluation of Azerbaijani national currency: Causes and consequences. Policy Documentation Center.
  9. Chiang Hui-Chu (2008). Essays on Monetary Policy and International Trade. [Doctoral dissertation, Texas A&M University].
  10. Chowdhury, A. R. (1993). Does exchange rate volatility depress trade flows? Evidence from error – correction models. The Review of Economics and Statistics, 75(4), 700-706.
  11. Cubillos, T. J. P., Soltész, B., & Vasa, L. (2021). Bananas, coffee and palm oil: The trade of agricultural commodities in the framework of the EU-Colombia free trade agreement. PLoS ONE, 16(8), e0256242.
  12. Feng, G. F., Yang, H. C., Gong, Q., & Chang, C. P. (2021). What is the exchange rate volatility response to COVID-19 and government interventions? Economic Analysis and Policy, 69, 705-719.
  13. Frankel, J. A., & Froot, K. A. (1990). Chartists, fundamentalists, and trading in the foreign exchange market. The American Economic Review, 80(2), 181-185.
  14. Geiger, M., Nguyen, H., & Nguyen, H. (2018). Gradual versus big-bang devaluations: An empirical analysis. MTI Discussion Paper, 8. World Bank Group.
  15. Gomez, M., Landier, A., Sraer, D., & Thesmar, D. (2021). Banks’ exposure to interest rate risk and the transmission of monetary policy. Journal of Monetary Economics, 117, 543-570.
  16. Guliyev, F. (2016). Azerbaijan: Low oil prices and their social impact. Caucasus Analytical Digest No. 83.
  17. Gurbanov, S., Nugent J. B., & Mikayilov, J. (2017). Management of oil revenues: Has that of Azerbaijan been prudent? Economies, 5(2), 19.
  18. Hayes, A. (2019). 3 reasons why countries devalue their currency. Investopedia.
  19. Hirschman, A. O. (1949). Devaluation and the trade balance: A note. The Review of Economics and Statistics, 31(1), 50-53.
  20. Hooper, P., & Kohlhagen, S. W. (1978). The effect of exchange rate uncertainty on the prices and volume of international trade. Journal of International Economics, 8(4), 483-511.
  21. Huchet-Bourdon, M., & Korinek, J. (2011). To what extent do exchange rates and their volatility affect trade? OECD Trade Policy Papers, No. 119.
  22. Huseynov, H. H., Jafarov, H. I., Vermeer, M., & Gaplaev, M. Sh. (2021). The modern pace of development and perspectives of horticulture in Azerbaijan. IOP Conference Series: Earth and Environmental Science, 624, 012197.
  23. Jakab, Z. M., Varpalotai, V., & Vonnak, B. (2006). How does monetary policy affect aggregate demand? A multimodel approach for Hungary. MNB Working Paper, No. 4.
  24. Karras, G. (2001). Openness to trade and the potency of monetary policy: How strong is the relationship? Open Economies Review, 12, 61-73.
  25. Kharroubi, E. (2011). The trade balance and the real exchange rate. BIS Quarterly Review.
  26. Kreinin, M. (1977). The Effect of Exchange Rate Changes on the Prices and Volume of Foreign Trade (L’effet des modifications du taux de change sur les prix et le volume du commerce extérieur) (El efecto de las variaciiones del tipo de cambio sobre los precios y el volumen del comercio exterior). Staff Papers (IMF), 24(2), 297-329.
  27. Majaski, C. (2021). Devaluation, Investopedia.
  28. Marjit, S., Byasdeb, D., & Sandip, M. (2000). Currency devaluation and exports: Separating actual from statistical. Economic and Political Weekly, 35(18), 1553-1558.
  29. Mukhtarov, S., Humbatova, S., Mammadli, M., & Hajiyev, N. G.-O. (2021). The impact of oil price shocks on national income: evidence from Azerbaijan. Energies, 14(6), 1695.
  30. Nicita, A. (2013). Exchange rates, international trade and trade policies. International Economics, 135-136, 47-61. UNCTAD.
  31. Perée, E., & Steinherr, A. (1989). Exchange rate uncertainty and foreign trade. European Economic Review, 33(6), 1241-1264.
  32. Pettinger, T. (2017). Does devaluation cause inflation? Economics Help.,and%20rising%20demand%20for%20exports
  33. Ravindra, H. D., & Raveendra, V. S. (2000). Exchange rate pass-through and volatility: impact on Indian foreign trade. Economic and Political Weekly, 35(47), 4109-4116.
  34. Segal, T. (2021). Does Inflation Favor Lenders or Borrowers? Investopedia.
  35. Vásáry, M., Kránitz, L., Vasa, L., & Baranyai, Zs. (2013). Versenyképességi vizsgálatok a visegrádi országok közötti agrárkereskedelemben (Analysing competitiveness ampng Visegrad countries). Gazdálkodás 57(6), 544-558. (in Hungarian)
  36. World Bank. (2020). World Development Indicators. The World Bank Group.

Received 27.04.2021
Received in revised form 12.05.2021
Accepted 20.05.2021
Available online 10.07.2021