Assessing the impact of exchange rates on international trade in the manufacturing sector of CEE countries: A specific focus on SMEs

This paper aims to analyze the impact of exchange rates on international trade in the manufacturing sector in selected Central and Eastern European (CEE) countries. To accomplish this, a distinctive combination of econometric techniques is employed, enabling an assessment of both macro- and micro-level perspectives concerning the mutual relationship between foreign exchange rates and international trade. At the macroeconomic level, the examination employs the J-curve methodology, utilizing Johansen cointegration and vector error correction models to assess the influence of currency exchange rate dynamics on international trade within the manufacturing industry in Bulgaria, the Czech Republic, Croatia, Hungary, Poland, and Romania. At the micro level, the generalized method of moments is applied to company data from the manufacturing industry in each respective country. The research period encompasses data spanning from 2011 to 2021. The research findings highlight a significant disjunction between macroeconomic and microeconomic perspectives on the impact of exchange rates within the manufacturing industry. While macroeconomic analysis indicates a general trend towards expected outcomes, such as increased exports and improved trade balance following domestic currency depreciation, miecroeconomic regression analysis reveals a more nuanced picture. Contrary to macroeconomic assumptions, the microeconomic perspective, particularly in the case of Romania and Hungary, suggests that exchange rate effects may have opposite impacts on return on assets (ROA) in the manufacturing sector in tested small- and medium-sized companies. This discrepancy underscores the complexity of exchange rate dynamics and emphasizes the need for nuanced, context-specific analyses when assessing the influence of exchange rate fluctuations on international trade and financial performance.