Abstract:
We analyse the long-run and short-run relationship between merchandise
export volume and its determinants, foreign income, relative prices and
exchange rate variability, using the techniques of cointegration and error
correction. The model was estimated for Irish exports and sectoral exports
SITC 0-4 and SITC 5-8 to the European Union using quarterly data for the
period 1979-1992. The sectoral classification corresponds to the exports of
mainly indigenous Irish firms and multinationals, respectively. We find that
exchange rate volatility has a negative effect on the exports of the multinational
sector but no effect on the exports of the indigenous sector in the
short run. In contrast, exchange rate volatility has no effect on the exports
of the multinational sector but a positive effect on the exports of the indigenous
sector and overall exports in the long run. This last result implies that
Ireland's participation in the single European currency might have a negative
impact on exports of indigenous firms and, as a consequence, overall
exports.
