The Effect of Trade Openness on Exchange Rate: A Meta-regression Analysis

Mauritius - 9 October 2019

Trade topics: Trade Modelling, Trade Policy

Trade openness remains one of the key drivers of exchange rate fluctuations in both the long-run and short-run. The relationship between trade openness and exchange rate has long been explained in many theoretical and empirical studies. Nevertheless, in the empirical literature, the results on the trade openness and exchange rate nexus were mixed and divergent; while most studies revealed a negative relationship between trade openness and exchange rate, some found a positive relationship and very few even demonstrated a null relationship. To this end, the present study aims at investigating the underlying elements influencing the trade openness and exchange rate nexus within a meta-analysis framework. In particular, we perform a meta-regression analysis on 60 studies with a total of 295 estimates. In addition, our findings reveal that the variation in the impact of trade openness on exchange rate are due to country characteristics, data characteristics and estimation characteristics.

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