Influences of Exchange Rates on Romanian Exports

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INFLUENCES OF EXCHANGE RATES ON ROMANIAN EXPORTS

“ALMA MATER” UNIVERSITY, SIBIU, ROMANIA

ABSTRACT Exports represent a major component of gross domestic product. In a more and more globalized world, the importance of export activity increased. Export depends on a large variety of factors that can have a positive or negative effect on it. Some consider that exchange rates are a factor that can influence the dynamics of exports. In this paper, the author presented different points of view on the topic of the correlation between exchange rates and export. The author analyzed the possible influence of exchange rates on Romanian exports. The period took into consideration for the research is 1990- 2012.

Keywords Export, exchange rate, currency, depreciation The aim of this paper is to present the way in which the rate of exchange influenced 1. Introduction the evolution of Romanian exports, during International trade is a more and more 1990-2012. In order to realize this aim, the significant part of economic activity of most author of the paper started by presenting countries. theoretical approaches concerning the matter In order to find out which is the influence of the influence of exchange rates on exports. of international trade on the economic growth In the study on the influence of the rate of a country, one should take into of exchange on Romanian exports, the author consideration two important aspects: export, considered two main periods of time, 1990- which is the activity of selling products 1998 and 1999-2012. This division of time abroad; import, which is the activity of was based on the consideration that, on 1 buying products from abroad. January 1999, the euro replaced the ECU (i.e.

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European Currency Unit), at the value €1 = 1 If export surpasses import, the trade ECU. balance of the country will have a surplus. If import surpasses exports, the balance of trade 2. Theoretical Influences of Exchange will have a deficit, which is generally Rates on Exports perceived as a negative situation [3]. There are different points of view on the The modification of exchange rates may matter of exports in correlation with cause a profit or loss to firms that export their exchange rates. One may say that there are products. certain correlations on both sides. Therefore, In international trade, if the currency in exchange rates may influence the dynamics which the exporter is paid appreciates of export, and exports may influence the (between the moment of product selling and evolution of exchange rate. the moment of receiving the counter value of The exchange rate is the price of the those products), the exporter will have a currency of a country expressed in the profit, due to the dynamics of the exchange currency of another country [1]. rate. Economists consider that the dynamics When the currency in which the exporter of exchange rates can have a significant is paid depreciates, the exporter may have a impact on the exports of a country. A weaker loss. domestic currency of a country can stimulate Some authors point out the fact that exports from that country: exporters are more exchange rates can be used to stimulate competitive on foreign markets, because their export. Therefore, a country can devalue its goods and services are cheaper for abroad currency in order to stimulate exports or to buyers [2]. dampen imports [4]. When domestic currency is stronger, exporters lose their commercial competitive 3. Influences of Exchange Rates on advantage, because their products will cost Romanian Exports during 1990-1998 too much for abroad clients. On the other During 1990-1998, ECU was used as a hand, a stronger domestic currency of a unit of account of the European Community. country may stimulate imports in that country: Therefore, the statistical data used by the importers can bring cheaper products from author for this period of time (1990-1998) is abroad. Euro/ECU. Exports are an important indicator for In Table no. 1, there are the statistical the international trade of a country. The data concerning the annual rates of exchange dynamics of export has a major effect on the and the Romanian exports during 1990-1998. trade balance of a country. Table no. 1 Exchange Rates and Romanian Exports in 1990-1998 Euro/ECU Exchange Rates – Exports of Goods and Services Year Annual Data [Romanian leu] [Millions of euro] 1990 0.0046 3,101.8 1991 0.0145 2,668.7 1992 0.0674 2,487.1 1993 0.0886 5,205.9 1994 0.1972 6,286.5

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1995 0.2662 7,328.1 1996 0.3922 7,682.2 1997 0.8108 8,867.7 1998 0.9985 8,530.4 Data source: Eurostat [5] Data table: author’s own processing

As shown in Table no. 1, the exchange In 1993-1996, both exchange rates and rates of ECU/Euro had an upward trend exports had an upward trend. During during 1990-1998. On the hand, in the same 19971998, exports of goods and services period of time, Romanian exports of goods decreased, in spite of the fact that the and services had a variable dynamics. During exchange rates increased. 1990-1992, in spite of the upward trend of the In Figure no. 1, there is a graphic exchange rates, Romanian exports had a representation of the dynamics of exchange downward trend. rates and Romanian exports during 1990- 1998.

Figure no. 1 Dynamics of Exchange Rates and Romanian Exports in 1990-1998 Using statistical software (i.e. Microsoft Data source: Eurostat [5] Excel), the author obtained the information in Data graph: author’s own processing Table no. 2. As shown in Figure no. 1, in spite of the The coefficient of determination “R variable dynamics of Romanian exports, Square” shows the proportion in the during 1990-1998, both exchange rates and variation of the dependent variable Y exports have upward overall trends in that (around its mean Y-bar) that depends on the period of time. Therefore, one may suspect independent variable X. As shown in Table that there was a connection between the no. 2, R Square is 0.7077. It means that dynamics of exchange rates and the 70.77% of the variation of the dependent evolution of exports. variable Y around its mean is explained by

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the independent variable X. In this case, Y P-value (Table no. 2) is called stands for Romanian exports during 1990- “probability value” or “marginal significance 1998, and X stands for exchange rates during level”. Given a P-value, one can tell at a 1990-1998. glance whether the null hypothesis of a zero Multiple R (i.e. square root of R Square) coefficient is rejected or accepted. For shows the correlation between Y and Y-hat example, if one is performing a test at the 5 (i.e. the predicted average Y value for a given % significance level a P-value lower than X, found by using the regression equation). 0.05 is taken as evidence to reject the null As given in Table no. 2, Multiple R is 0.8412. hypothesis of a zero coefficient. It means that the correlation between Y and Significance F (see Table no. 2) is the P- Y-hat is of 84.12 %. In this case, Y stands for value (or the marginal significance level) of Romanian exports during 1990-1998. the F-test. The F-test (see “F” in Table no. 2) is a test of the hypothesis that all of test at the 5 % significance level, a P-value the slope coefficients (excluding the of Significance F lower than 0.05 is taken as constant, or intercept) in a regression are evidence to reject the null hypothesis that all zero. For example, if one is performing a slope coefficients are equal to zero.

Table no. 2 Analysis of the Influence of Exchange Rates on Romanian Exports during 1990-1998 SUMMARY OUTPUT Regression Statistics Multiple R 0.841257344 R Square 0.707713919 Adjusted R 0.665958765 Square Standard Error 1464.906896 Observations 9 ANOVA df SS MS F Significance F Regression 1 36372042.52 36372042.52 16.94913907 0.004476763 Residual 7 15021665.5 2145952.214

Total 8 51393708.02

Coefficients Standard Error t Stat P-value Lower 95 % Intercept 3924.234344 667.0897888 5.882617918 0.0006101 2346.817652 X Variable 1 5929.668494 1440.312045 4.116933212 0.004476763 2523.871702 Data source: Eurostat [5] Data table: author’s own processing

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As shown in Table no. 2, both each coefficient is lower than 0.05); the null Significance F and P-value are lower than hypothesis that all slope coefficients are 0.05. It means that, for a 5% significance equal to zero is rejected, too (because the level, the null hypothesis of a zero coefficient Significance F is lower than 0.05). is rejected for each coefficient (because the P-value of

Figure no. 2 Dependence of Romanian Exports on Exchange Rates in 1990-1998

Data source: Eurostat [5] Data graph: author’s own processing Given the analysis results in Table no. 2, The graphic representation of (1) is the there is a correlation between Y and X; the regression line Linear (Exports of goods and regression equation is (1). services [Millions of euro]) in Figure no. 2. According to (1), a unit increase in the independent variable X determines a 5929.7- unit increase in the dependent variable Y.

Y 5929.7* X 3924.2 (1)

The variables in (1) are Romanian exports (i.e. Y) and exchange rates (i.e. X), during 1990-1998. According to (1), during the years 1990-1998, exchange rates had a significant influence on Romanian exports. In Figure no. 2, there is a graphic representation of the dependence of Romanian exports on exchange rates, during 1990-1998. As shown in Figure no. 2, there was a strong positive correlation between Romanian exports and exchange rates, during 19901998.

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4. Influences of Exchange Rates on Romanian Exports during 1999-2012 The statistical data concerning exchange rates and Romanian exports during 19992012 are presented in Table no. 3. Data source: Eurostat [5] In Figure no. 3, there is a graphic

Table no. 3 Exchange Rates and Romanian Exports in 1999-2012 Euro/ECU Exchange Rates – Annual Data Exports of Goods and Services Year [Romanian leu] [Millions of Euro] 1999 1.6345 9,403.7 2000 1.9922 13,347.0 2001 2.6004 14,996.7 2002 3.1270 17,193.3 2003 3.7551 18,284.1 2004 4.0510 21,882.8 2005 3.6209 26,401.1 2006 3.5258 31,553.2 2007 3.3353 36,547.1 2008 3.6826 42,532.3 2009 4.2399 36,169.6 2010 4.2122 44,038.7 2011 4.2391 52,592.5 2012 4.4593 53,477.0

Data table: author’s own processing representation of the dynamics of exchange rates and Romanian exports during 19992012. During 1999-2004, exchange rates had in upward trend. In 2005-2008, the trend of exchange rates was a downward one. During 2009-2012, there was a variable dynamics of exchange rates. In the period 1999-2012, the lowest level of the exchange rate was in 1999, and the highest level was in 2012. During 1999-2008, there was an upward trend of Romanian exports; in 2008-2009, the trend was downward. During 20102012, Romanian exports increased each year. The lowest level of Romanian exports, during 1999-2012, was in 1999; the highest level was in 2012.

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Figure no. 3 Dynamics of Exchange Rates and Romanian Exports in 1999-2012 Data source: Eurostat [5] (because the Significance F is lower than Data graph: author’s own processing 0.05).

As shown in Figure no. 3, during As given in Table no. 4, P-value is lower 19992012, the trends of exchange rates and than 0.05, in the case of the coefficient of the Romanian exports seem to have been upward. independent variable X. It means that, for a 5 Using statistical software (i.e. Microsoft % significance level, the null hypothesis of a Excel), the author analyzed the correlation zero coefficient is rejected, for the coefficient between exchange rates and Romanian of the variable X (because the P-value of the exports during 1999-2012. The results of the coefficient is lower than 0.05). analysis are presented in Table no. 4. As shown in Table no. 4, P-value is As shown in Table 4, R Square is 0.6136. greater than 0.05, in the case of the intercept. It means that 61.36 % of the variation of the It means that, for a 5 % significance level, the dependent variable Y around its mean is null hypothesis of a zero coefficient is not explained by the independent variable X. In rejected, in the case of the intercept (because this case, Y stands for Romanian exports and the P-value of the coefficient is greater than X stands for exchange rates, during 1999- 0.05). 2012. Given the analysis results in Table no. 4, As given in Table no. 4, Multiple R is there is a correlation between Y and X; the 0.7833. It means that the correlation between regression equation is (2). According to this Y and Y-hat is of 78.33 %. In this case, Y equation, a unit increase in the independent stands for Romanian exports during 1999- variable X determines a 13359-unit increase 2012. in the dependent variable Y. As shown in Table no. 4, Significance F Y 13359* X 16367 (2) is lower than 0.05. It means that, for a 5 % In this case, the variables in (2) are significance level, the null hypothesis that all Romanian exports (i.e. Y) and exchange rates slope coefficients are equal to zero is rejected (i.e. X), during 1999-2012. Table no. 4

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Analysis of the Influence of Exchange Rates on Romanian Exports during 1999-2012 SUMMARY OUTPUT Regression Statistics Multiple R 0.783362191 R Square 0.613656322 Adjusted R Square 0.581461015 Standard Error 9504.128379 Observations 14 ANOVA df SS MS F Significance F Regression 1 1721699035 1721699035 19.06043 0.000918905 Residual 12 1083941475 90328456.24

Total 13 2805640510

Coefficients Standard Error t Stat P-value Intercept -16367.42483 10894.91633 -1.502299268 0.15887 X Variable 1 13358.61867 3059.815419 4.365825006 0.000919 Data source: Eurostat [5] Data table: author’s own processing

As shown in Figure no. 4, there would be a positive correlation between Romanian exports and exchange rates, during 1999-2012.

Figure no. 4 Dependence of Romanian Exports on Exchange Rates in 1999-2012

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Data source: Eurostat [5] Data graph: author’s own processing

As shown in Table no. 2 and Table no. 4, On the other hand, as given in Table during 1999- 2012, the correlation between no.4, the P-value corresponding to the Romanian exports and exchange rates was intercept does not reject the null hypothesis weaker than the correlation in 1990-1998. of a zero coefficient. Therefore, the value of the intercept in (2) is debatable. Thus, in spite of the values of R square and Multiple R, the The dependence of Romanian exports on validity of (2) is questionable. the depreciation of the Romanian Leu seems Anyway, if we accepted (2) as reliable, a to have been strong, during 1990-1999. graphic representation of the dependence of In 1999-2012, there may have been a Romanian exports on exchange rates (during correlation between Romanian exports and 1999-2012) would be in Figure no. 4. exchange rates. In spite of all anticipations, The graphic representation of (2) would the statistical data did not lead to a be the regression line Linear (Exports of completely reliable regression equation. goods and services [Millions of euro]) in The unreliability of the regression Figure no. 4. equation, for the period 1999-2012, might be a consequence of the economic turmoil of the 5. Conclusions world financial crisis (i.e. the crisis that According to the analysis of the started in 2007-2008). Because of the crisis, statistical data, during 1990-1998, the Romanian exports might have had an unusual depreciation of the Romanian Leu (and the reaction to the dynamics of exchange rates. appreciation of the ECU/Euro) stimulated increasing Romanian exports. References 1. Ilie Băbăiţă et al., Macroeconomie, (Timişoara: Mirton Publishing House, 2003), 185. 2. Manfred Gärtner, Macroeconomics, (London: Pearson Education, 2006), 99. 3. Robert J. Rossana, Macroeconomics, (New York: Routledge, 2011), 520. 4. Jonathan Reuvid and Jim Sherlock, International Trade: An Essential Guide to the Principles and Practice of Export, (London: Kogan Page, 2011), 7. 5. EUROSTAT, “Statistics”, http://epp.eurostat.ec.europa.eu (accessed January 07, 2014).

Bibliography Băbăiţă, Ilie, Grigore, Silaşi, Alexandrina, Duţă and Ion, Imbrescu. Macroeconomie. Timişoara: Mirton Publishing House, 2003. Boyes, William and Michael Melvin. Macroeconomics. Mason: Cengage Learning, 2013. Cherunilam, Francis. International Economics. New Delhi: Tata McGraw-Hill, 2008. Gärtner, Manfred. Macroeconomics. London: Pearson Education, 2006. Reuvid, Jonathan and Jim Sherlock. International Trade: An Essential Guide to the Principles and Practice of Export. London: Kogan Page, 2011. Rossana, Robert J. Macroeconomics. New York: Routledge, 2011. EUROSTAT. “Statistics”. http://epp.eurostat.ec.europa.eu (accessed January 07, 2014).

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