Investigating the Impacts of Exchange Rate and Inflation on Exports: A Double Threat or Opportunity for Turkiye?

TL;DR

This paper examines how exchange rate and inflation affect Turkey's exports from 1995 to 2023, highlighting the importance of stability and strategic policies for trade enhancement.

Contribution

It employs Johansen cointegration and DOLS methods to quantify long-term impacts of exchange rate and inflation on exports in Turkey.

Findings

Exchange rate appreciation reduces exports with a coefficient of -0.185.

Higher inflation decreases exports with a coefficient of -0.125.

Foreign direct investment and imports positively influence exports.

Abstract

This study analyzes the impacts of exchange rate and inflation on exports in Turkiye. Annual data for the period 1995-2023 were used in the analysis. The Johansen cointegration analysis and Dynamic Least Squares (DOLS) method were employed in the study. Identifying the cointegration relationship enabled the estimation of the long-run coefficients. The results show that an increase in the real effective exchange rate (appreciation of the Turkish lira) and inflation reduce exports with coefficients of -0.185 and -0.125, respectively. Foreign direct investment and imports, added to the study as control variables, have a positive impact on exports with coefficients of 0.117 and 0.849, respectively. These findings indicate that exchange rate stability and inflation control are priorities for improving foreign trade performance. Furthermore, policies that increase foreign direct investment and strategically manage imports complement this process.