Socioeconomic Challenges Caused by Currency Exchange Rate Volatility: A View via the Prism of Export Diversification

Exchange rate volatility can have socioeconomic challenges and a significant impact on export diversification of major global economies. The main objective of this article is to assess the symmetric and asymmetric effect of exchange rate volatility on Algerian export diversification. For this purpose, the autoregressive linear and nonlinear distributed lag (ARDL) model and annual data for the period 1990-2023 were used.The empirical findings using the estimation for time series data reveal that the volatility of the exchange rate has a symmetric effect on export diversification. The results revealed the presence of cointegration between the variables. The relationship between exchange rate volatility and export diversification in Algeria is positive and symmetric, which is contrary to conventional wisdom, as both currency depreciation and appreciation were found to boost diversification. Economic openness and GDP per capita significantly promote diversification, while investment and infrastructure surprisingly hinder it. Inflation also has an unexpected positive effect. The model adjusts quickly to equilibrium, though short-run results show mixed results. Diagnostic tests confirm robustness, except for serial correlation, corrected via Newey-West standard errors. This article suggests that policy makers should adopt different policies to address socio-economic challenges and keep the exchange rate stable in order to promote export diversification.