Exchange Rate Volatility and Its Impact on International Trade: Evidence from BRICS Nations

Abstract

Exchange rate volatility has significant implications for international trade, particularly for emerging economies whose external sectors are sensitive to currency fluctuations. This study investigates the relationship between exchange rate volatility and international trade among the BRICS nations—Brazil, Russia, India, China, and South Africa. These countries, known for their rapidly growing economies and increasing trade openness, are vulnerable to currency instability arising from global financial movements, commodity prices, and geopolitical risks. This research analyzes whether exchange rate fluctuations affect the volume and direction of exports and imports in these nations. Using time-series data from 2000 to 2023, along with trade elasticity models and Generalized Autoregressive Conditional Heteroskedasticity (GARCH) estimates, the paper demonstrates that excessive exchange rate volatility hampers trade flows by increasing uncertainty in pricing, contracts, and investment decisions. However, the degree of impact varies across countries depending on the elasticity of their trade structures, the level of exchange rate pass-through, and central bank interventions. The study concludes with policy recommendations for exchange rate management, hedging strategies, and trade stabilization mechanisms.