Causal Relationship Between Exchange Rate and Exports of SAARC Nations

Abstract

The present research examines the Causal relationship between Exchange Rate and Exports of SAARC nations for the period from 1st January, 2005 to 31st December, 2015 using appropriate statistical tools and techniques. SAARC includes Afghanistan, Bangladesh, Bhutan, Nepal, India, Maldives, Srilanka and Pakistan. The study is based on secondary data obtained from various data sources namely International financial statistics, Ministry of commerce and industry, Trading economics, Yahoo Finance and Oanda, the currency site. Granger causality test is applied to test the dynamic causal relationship between Exchange rate and Exports of SAARC Nations. The results stated that there is no causal relationship between Exchange Rates and Exports. Vector Error Correction Model is used to analyse the impact of Exchange Rate on Exports. The results also indictae that exchange rate had a negative effect on Exports.