The Effect of Foreign Exchange Rates on Commercial Openness: A Panel ARDL Analysis on BRICS-T Countries

Abstract

According to many international evaluations, as shown in the world's emerging economies BRICS-T was formed by adding Turkey to BRICS (Brazil, Russia, India, China and South Africa), the world’s emerging countries. The importance of this group in the world trade and economy started to increase after 2000s. In this context, the relationship between exchange rates and foreign trade has become increasingly important for BRICS-T countries. In this study, the effect of exchange rates on trade openness was analysed by using panel ARDL method for BRICS-T countries using annual data for 1996-2017 period. Stability of the series was estimated by ADF and PP panel unit root tests, causality relationship was evaluated by Dumitrescu and Hurlin (2012) test, and cointegration relationship was estimated by panel ARDL-PMG approach. As a result of the study, while there is a one-way causality relationship from exchange rate to trade openness and from exchange rate to inflation, a two-way causality relationship from inflation to trade openness has been determined. In addition, in the long run, the 1% increase in inflation increased the trade openness by 1.26%.