Empirical studies examining the impact of exchange rate volatility on economic growth present diverse and often conflicting findings. While some studies report a negative relationship, others find a positive or negligible impact, highlighting a gap in understanding the causes of these discrepancies. To date, no meta-analysis addressing this issue has been published in publicly available scientific sources.
This study aims to fill this gap by conducting a comprehensive meta-analysis of 158 empirical estimates from 36 studies.
After examining the heterogeneity of estimates and publication bias, the results of the meta-analysis reveal that exchange rate volatility has a significant negative impact (−0.2432) on economic growth. Further regression analysis identifies key sources of variation across studies, including differences in estimation methods, control variables and timeframes. The use of techniques such as ordinary least squares, generalized least squares, vector error correction model, random effects and GMM significantly amplifies the negative effect, while the inclusion of control variables like capital and inflation mitigates it. Conversely, variables such as exports and terms of trade intensify the negative relationship. Additionally, longer study periods exacerbate the adverse effects of exchange rate volatility on economic growth.
This study provides the first systematic synthesis of findings in this domain, offering valuable insights for future research and policymaking.
