There is a common belief that currency depreciation helps in improving the exports and that is a common discussion point amongst economist, business reporters, and investors. Does depreciation really help in improving export income or it is a myth? This article tries to answer this.

1. Is export income positively correlated with the depreciation of the currency?
(In other words: Does the depreciation of currency really help in improving the export share?)
Below is an interesting table. It was originally published in a CRISIL Research Report of Nov 2016 (see here). The report
has provided the % share in world exports of China, India, Bangladesh and Vietnam. If the % share is increasing (compared
to the previous year) then it is in green colour else in red. I have added the currency rates for each of country compared
to USD. If currency is appreciating against USD then it is highlighted in red else in green.
1) Chinese share in the world exports has been steadily increasing from 4.35% in 2001 to 13.96% in 2015. However,
its currency appreciated consistently till 2013.
2) India has a varied % share of world exports. However, its currency is consistently depreciating except in 2006
3) Similarly, Bangladesh and Vietnam have a consistent increase in the % share of world exports. However,
Bangladesh’s currency has appreciated in 2012 and 2013 and Vietnam’s currency has appreciated in 2012.
Some inferences from the table:
1. There is a common belief that currency depreciation helps in improving the exports and it is a common
discussion point amongst economist, business reporters, and investors. But when we see the above table, we
find that it is not factual. The countries have been increasing their share in the world exports market despite
their currencies appreciating and on the other hand India has been losing the export market share despite the
depreciation of its currency.
2. We require more than just the play of the currency to improve the exports. What are those factors? Some of
these factors include: government support – both local and central, infrastructure – roads/ports, availability of
predictable power supply, labour laws, availability of cheap and skilled labor force, bureaucracy to start/close a
business – number of permission/days required and a culture of providing extraordinary quality products and
services at a competitive price.
Some limitations:
1) The dataset is limited to only 4 countries and may not truly represent the entire world. However, developing
countries like China and India provide us good basis to believe that export income is not a linear function of
depreciation of the currency. Even if the currency appreciated, the countries have done well in their export
income
2) The data is from 2001 but only of 7 years. However, the data of last 5 years (2011-2015) may give a good
indication and basis for comparison
3) The currency depreciation could be because of several factors and we are not discussing about them. We are
limiting only to see if depreciation helps in getting higher exports and vice-a-versa.
Your comments are valuable and I look forward to them.
Niteen S Dharmawat
Blog: http://dharmawat.blogspot.com/ I Facebook: https://www.facebook.com/dharmawat
Slideshare: www.slideshare.net/ndharmawat/ I Linkedin: in.linkedin.com/in/dharmawat/
Twitter: @niteen_india
Parameter 2001 2006 2011 2012 2013 2014 2015
China % share in world exports 4.35 8.11 10.5 11.16 11.71 12.42 13.96
China Currency/$ 8.28 7.81 6.29 6.23 6.05 6.20 6.50
India % share in world exports 0.72 1.01 1.67 1.58 1.78 1.68 1.62
India Currency/$ 48.22 44.25 53.06 54.85 61.86 63.19 66.20
Bangladesh % share in world exports 0.09 0.10 0.13 0.15 0.17 0.18 0.22
Bangladesh Currency/$ 56.95 68.99 81.78 79.68 77.29 77.88 78.43
Vietnam % share in world exports 0.25 0.33 0.54 0.62 0.70 0.80 1.15
Vietnam Currency/$ 15083 16034.00 21030.00 20833.33 21079.26 21385.78 22150.00
Currency yearly closing price from XE.com
% share in world exports from CRISIL Research report (https://www.crisil.com/pdf/research/crisil-insight-bifocal-please-nov-2016.pdf)
Source:
dharmawat.blogspot.com
Improvement in %share/Depreciation of currency
Decline in %share/Appreciation of currency