Exchange Rate Volatility, International Trade and Economic Growth in India

Abstract

This study analyses the relationship among the exchange rate volatility, international trade and economic growth in India during 1976-2023. The unit root test result confirms that all the variables are non-stationary at level and it’s become stationary at first difference. Further, the cointegration as well as error correction test result confirms the possibilities of the long run relationship among the variables. And granger causality test confirms that the imports of goods and services affect the GDP in positive as well as negative direction and exchange rate (increase or decrease) affects the exports and imports of goods and services (increase or decrease) which leads to overall performance of the country. Therefore, the important policy suggestion that to control the fluctuations in exchange rate is important to control the interest rates, inflation, political stability, economic health, trade and growth of the country.