Abstract:

This paper examines the nexus between export diversification and economic growth in the G7 countries and how exchange rate volatility affects this relationship. Using data covering from 1995 to 2018, the study applies the fully modified ordinary least squares (FMOLS) and dynamic ordinary least squares (DOLS) techniques to examine the long-run impact of export diversification on economic growth. The results show that export diversification significantly enhances economic growth in the G7 countries. Nonetheless, the growth-enhancing effect of export diversification is inimically affected by exchange rate volatility. We also document that trade openness significantly accelerates growth which supports the trade-led growth hypothesis in the bloc. To the best of the researchers' knowledge, there is no specific study on the export diversification and economic growth relationship in the G7 countries. Besides, based on a detailed review of the literature, we are unaware of any empirical research that considers the moderating impact of exchange rate volatility on the export diversification-growth nexus.

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