4 RESULTS

This chapter presents the estimation results from the different models

proposed in the methodology. The aim of this research is to provide initial empirical

evidence on the effects of exchange rate volatility (in own country and G-3

currencies) on agricultural and total exports from Brazil, Russia, India, China, South

Africa, (BRICS), Turkey (Part of MINT) and Honduras (a LMIC). In particular, one

motivation is to examine the validity of the claims of the leaders of emerging

economies: “export are being negatively impacted by G-3 currency volatility. To this

end, two main hypotheses are tested. Hypothesis 1: Unconditional (constant) currency

exchange rate volatility (own and G-3) does not Granger cause BRICS exports.

Hypothesis 2: Conditional (stochastic) currency exchange rate volatility (own and G-

3) does not impact BRICS exports. The results from the testing of these hypotheses

are provided in the next subsections.

4.1 Hypothesis 1

4.1.1 Pretesting

In most analyses using time series data it is imperative to carry out pretesting

to identify the data generating process of the variables. Monte Carlo studies have

confirmed low statistical power of ADF and PP tests, especially in cases with roots

very close to the unit circle. Low power translates into low probability of rejecting the

null hypothesis when is false. In practice, more unit roots will be identified than there

actually are. One way to increase statistical power is by increasing the significance

level (α) of the test to a more conservative level, 10 % (α=0.10).

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