The Effect of Real Exchange Rate Volatility on the Trade of Educational Services

ABSTRACT

This article finds that high levels of real exchange rate volatility between two trading partners significantly decrease the amount of educational services traded. Many academic institutions are actively looking to expand exports of educational services as a means of increasing revenues. Internal policies that reduce real exchange rate uncertainty may help encourage trade of educational services between countries where volatility is high. The discovery that real exchange rate volatility serves as a significant barrier to attracting educational export opportunities to certain countries underscores an obstacle that should and/or could be addressed as academic institutions strive to expand their international enrollments.

KEYWORDS:

• Bilateral trade
• educational services
• exchange rate volatility
• services trade

Notes

¹ Gourlay, Seaton, and Suppakitjarak (2005) examine total service trade from UK firms and do not consider bilateral flows between country pairs. For this reason, they selected the exchange rate of British pound to the US dollar as the representative benchmark exchange rate.

² The first year in our sample is 2003. The final year in our sample is 2010. However, data for 2010 have a limited number of country pairs as compared to previous years. We, therefore, present descriptive statistics for 2009.

³ It should be noted that comparisons of magnitude, which attempt to assess the importance of real exchange rate volatility to that of other included explanatory variables, are difficult given technical interpretation of real exchange rate volatility as the standard deviation of the first difference of the monthly exchange rates between two trade partners (a standard set by Tenreyro (2007)).

⁴ As an additional robustness test, we conducted estimations that excluded trade between euro area countries. The results were similar in magnitude and significance to the results presented earlier.