Will shifting currency exchange rate differentials (2005-2007) redirect flows of foreign students?

I’ve had a great sabbatical in Paris so far, though the wretched state of the US$ is not pleasant. No one is giving me any sympathy, this said, as Paris is Paris…

As I checked today’s Euro-US$ exchange rate, it reminded me of two interesting graphics in the OECD’s Education at a Glance 2007 report. Take a look at these graphics, plus one I produced on the excellent Pacific Exchange Rate Service website. Ponder the effects of the changes in currency exchange differentials in five important receiving countries (with respect to foreign students) – Australia, Canada, Japan, New Zealand and the US – that charge relatively high tuition fees for these students. Unfortunately Box C3.3 does not peg the UK, but I’ve included it anyways in the currency exchange rate graph to see where the GBP has moved between 1 January 2005 (the date I selected as it falls in the middle of the period the OECD data refers to) and today.

Of course choosing where to study abroad is a complicated matter, and money is not the only issue. But it is worth asking what effects, if any, is the sliding (collapsing?) US$ is having on making the US more attractive for foreign students, and/or making Australia, Canada and New Zealand less appealing destinations. The Aus$ hit record highs this week, and the FT noted on Monday that it might reach parity with the US$ in the near future. The Canadian loonie is now worth more that the US$…something we Canucks have a hard time believing. And the NZ$ is moving in the same trend line as the Aus$. In any case structural changes like these matter (see “US exports hit record on weak dollar“), including to the overall geography of service exports. Given the time lags associated with the application and acceptance process, though, it won’t be until 2010 that some of these effects will be felt.

Kris Olds

8 July 2008 update: new currency exchange differential graph inserted below the original one.