The study aims to analyze the impact of exchange rate volatility on exports, using Thailand as a case study. Exchange rate volatility refers to the fluctuations or instability in the value of a countrys currency relative to other currencies. This research is motivated by the need to understand the relationship between exchange rate volatility and export performance in the specific context of Thailand, considering its importance as an exportdriven economy. Importance of Export Sector: Thailands economy heavily relies on its export sector, which plays a vital role in driving economic growth, employment generation, and foreign exchange earnings. The country is known for its diverse range of exports, including manufactured goods, agricultural products, and services. Therefore, comprehending the factors that influence export performance is crucial for policymakers, businesses, and stakeholders in Thailand.
FOREIGN TRADE UNIVERSITY FACULTY OF BANKING AND FINANCE Impact of exchange rate volatility on the export a case study of thailand Instructor: Assoc Prof Dr Mai Thu Hien Class: TCHE414 Hanoi - 2023 Table of Contents CHAPTER 1: INTRODUCTION 1.1 The rationale of the study 1.2 Objective and significance of the study .1 1.3 Research gaps CHAPTER 2: LITERATURE REVIEW .4 2.1 Theoretical framework .4 2.2 Previous studies on the impact of exchange rate volatility on exports 2.3 Factors affecting exchange rate volatility 2.4 The Thai economy and its export sector 12 CHAPTER 3: METHODOLOGY .16 3.1 Sample and data collection .16 3.2 Population and sample 16 3.3 Data collection methods 16 3.4 Data analysis 16 3.5 Ethical considerations .16 3.6 Limitations of the study 17 CHAPTER 4: THAILAND CASE STUDY .18 4.1 Trends in exchange rate volatility in Thailand .18 4.2 Analysis of the Impact of exchange rate volatility on Thai Exports .19 4.3 Sectoral analysis of the impact of exchange volatility on Thai exports 20 4.5 Macroeconomics also affects the export industry 25 CHAPTER 5: DISCUSSION AND RECOMMENDATIONS 27 5.1 Implications for policymakers and Exporters 27 5.2 Recommendation for Viet Nam exports 28 CHAPTER 6: CONCLUSION 30 REFERENCES: 31 Table of Figures Graph 1: Thailand: Export, percent of GDP 13 Graph 2: Thailand's export sectors 14 Graph 3: Thailand's exchange rate volatility (2010-2021) 19 Graph 4: Export value of the four products: electronics, machinery, rubbers, vehicle from 2010 to 2022 (in billion $) 23 CHAPTER 1: INTRODUCTION 1.1 The rationale of the study The study aims to analyze the impact of exchange rate volatility on exports, using Thailand as a case study Exchange rate volatility refers to the fluctuations or instability in the value of a country's currency relative to other currencies This research is motivated by the need to understand the relationship between exchange rate volatility and export performance in the specific context of Thailand, considering its importance as an export-driven economy Importance of Export Sector: Thailand's economy heavily relies on its export sector, which plays a vital role in driving economic growth, employment generation, and foreign exchange earnings The country is known for its diverse range of exports, including manufactured goods, agricultural products, and services Therefore, comprehending the factors that influence export performance is crucial for policymakers, businesses, and stakeholders in Thailand Exchange Rate Volatility and Export Performance: Exchange rate volatility can have significant implications for a country's export performance Fluctuations in exchange rates can affect the competitiveness of exports by influencing their prices in international markets When a country's currency depreciates, its exports become relatively cheaper, potentially boosting export volumes Conversely, currency appreciation can make exports more expensive, leading to a decline in competitiveness However, the relationship between exchange rate volatility and export performance is complex and multifaceted Various factors, such as the structure of the economy, trade openness, market diversification, and the presence of hedging mechanisms, can mediate the effects of exchange rate volatility on exports Thus, conducting a detailed case study analysis specific to Thailand is essential to understand the unique dynamics of its export sector 1.2 Objective and significance of the study Objectives of the Study: 1 To examine the trends and patterns of exchange rate volatility To assess the relationship between exchange rate volatility and export volumes To analyze the impact of exchange rate volatility on export diversification and market competitiveness in Thailand To identify potential strategies and policy recommendations to mitigate the negative effects or leverage the positive effects of exchange rate volatility on exports Significance of the Study: Policy Guidance: The findings of this study will provide policymakers in Thailand with valuable insights into the relationship between exchange rate volatility and export performance This knowledge can guide the formulation of effective policies and strategies to minimize the adverse impacts of exchange rate volatility and maximize the benefits for the export sector Business Decision-Making: The study's outcomes will assist businesses, especially exporters, in understanding the effects of exchange rate volatility on their operations This understanding can help them make informed decisions regarding pricing, risk management, and market diversification to enhance their competitiveness in international markets Trade Promotion: By analyzing the impact of exchange rate volatility on export diversification and market competitiveness, the study can contribute to efforts aimed at promoting and expanding Thailand's export base The findings can guide trade promotion agencies and organizations in devising targeted initiatives to support exporters in navigating exchange rate fluctuations effectively Economic Stability: Exchange rate volatility can have implications for overall economic stability Understanding the relationship between exchange rate volatility and export performance in Thailand will enable policymakers to develop measures that promote stability, reduce uncertainty, and ensure sustainable economic growth driven by the export sector Academic Contribution: The study will contribute to the existing body of knowledge on the impact of exchange rate volatility on exports, specifically within the context of Thailand It will fill a research gap by providing empirical evidence and insights into the unique dynamics of the Thai economy and export sector, thus enriching the academic literature in the field of international trade and finance Overall, this study holds significant importance for policymakers, businesses, and stakeholders in not only Thailand but all over the world as a salient example The findings will inform decision-making processes, foster economic stability, and provide valuable contributions to academic research in the field of exchange rate volatility and its impact on exports 1.3 Research gaps While numerous studies have examined the relationship between exchange rate volatility and exports, there is still a research gap when it comes to analyzing the impact on Thailand's export sector Existing research often focuses on larger economies or regions, neglecting the nuances of smaller and emerging economies like Thailand By conducting a case study on Thailand, this research aims to fill this gap and provide valuable insights into the specific dynamics of exchange rate volatility and exports in Thailand CHAPTER 2: LITERATURE REVIEW 2.1 Theoretical framework The theoretical framework for this study encompasses three key concepts: exchange rate volatility, export performance, and the mediating factors that influence the relationship between the two Exchange Rate Volatility: Exchange rate volatility refers to the fluctuations and instability in the value of a country's currency relative to other currencies This concept is rooted in international finance and macroeconomics theories The literature on exchange rate volatility emphasizes the impact of currency fluctuations on trade flows, including exports It suggests that higher levels of exchange rate volatility can lead to uncertainty, affecting export competitiveness and market outcomes Export Performance: Export performance refers to the ability of a country to sell goods and services to foreign markets It is influenced by various factors, including exchange rates The literature on export performance examines the determinants of export growth, market diversification, and competitiveness It suggests that exchange rate volatility can have both positive and negative effects on export performance Currency depreciation can enhance export competitiveness, leading to increased export volumes Conversely, currency appreciation can make exports more expensive, potentially decreasing export volumes Mediating Factors: Several mediating factors influence the relationship between exchange rate volatility and export performance These factors shape the extent to which exchange rate volatility affects exports Some key mediating factors include: a Economic Structure: The structure of the economy, including its reliance on specific export sectors, can impact the sensitivity of exports to exchange rate volatility For instance, countries with more diversified export portfolios may be less affected by currency fluctuations b Trade Openness: The degree of trade openness, measured by the ratio of exports to GDP, can influence the sensitivity of exports to exchange rate volatility More open economies may have a higher exposure to international markets and, thus, greater sensitivity to exchange rate movements c Market Diversification: The degree of market diversification refers to the presence of multiple export destinations Exporters that have diversified their markets may be less vulnerable to exchange rate volatility because they can redirect their exports to less affected markets d Hedging Mechanisms: The presence of hedging mechanisms, such as forward contracts or currency derivatives, can mitigate the negative effects of exchange rate volatility on exports Exporters that actively engage in hedging may be better able to manage currency risk and maintain export competitiveness The theoretical framework provides a foundation for understanding the complex relationship between exchange rate volatility and export performance It acknowledges that exchange rate volatility can directly impact export volumes but also recognizes the mediating factors that influence the strength and direction of this relationship By considering these factors, the study aims to provide a comprehensive analysis of the impact of exchange rate volatility on Thailand's export performance, taking into account the specific characteristics of the Thai economy and export sector 2.2 Previous studies on the impact of exchange rate volatility on exports Trade theory has been evolving since the constant development of the global economy requires it There are many methods that were applied and each gave a different rationale and different outcome As we mentioned before, it is hard to decide which methodology is correct because there is no solid relationship between exchange rate volatility and trade and sometimes it can be ambiguous even with consideration of all key drivers We believe each one has certain advantages to compromise with different cases so we had collect the information of the most recent studies in the table below as we want to have the broadest perspective: No Study Sampling Period Selected Measured factor country/ Result sector Bini- Quarterly Standard deviation Prices and Significant and smaghi 1976-84 of weekly rates of volumes of negative effects (1991) w.g., change of intra- exports of in volumes; france, italy ems effective manufactured mostly intra-ems exchange rate goods to ems significant trade within a quarter countries ols effects on prices GARCH model Feenstra Quarterly Import prices Significant and 1975-88 IVE, 3SLS negative for Kendall U.S U.K and W.G., (1991) bilateral insignificant for imports Japan Bélanger Quarterly measures: U.S imports et al 1975-87 squared of forecast from Canada: (1992) Canada- error defined as 90- sectors IVE, U.S day forward GIVE Not significant spread; and nonparametric method to isolate risk premium in forecast error Kumar Annual Standard deviation Intra industry (1992) 1962-1987 of monthly trade, net trade (88) U.S., percentage change and ratio of W.G., in real exchange intra industry to Mixed results