TRADING IN TURBULENT TIMES: COMPARING HOW EXCHANGE RATE VOLATILITY SHAPES ASIAN AND AFRICAN ECONOMIES

This study compares the impact of exchange rate volatility on trade performance in middle-income countries in the African and Asian regions. The results show that exchange rate volatility is statistically insignificant in affecting trade in the Asian region, suggesting a mature currency hedging system, while it significantly impacts trade in Africa, where traders' risk-aversion leads to increased exports to mitigate revenue losses from exchange rate fluctuations. The cointegration tests indicate a long-run relationship between exchange rate volatility and trade in both regions, and the causality tests reveal a unidirectional causality from exports to exchange rate volatility in Asia, with a bidirectional relationship in Africa, highlighting regional differences in how exchange rate risk influences trade dynamics.