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Impact of exchange rate movements on exports: An analysis of Indian non-financial sector firms

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  • Cheung, Yin-Wong
  • Sengupta, Rajeswari

Abstract

We explore the real effective exchange rate (REER) effects on the share of exports of Indian non-financial sector firms for the period 2000–2010. Our empirical analysis reveals that, on average, there has been a strong and significant negative impact from currency appreciation and currency volatility on Indian firms' export shares. Labor costs are found to intensify the exchange rate effects on trade. Further, there is evidence that the Indian firms considered here respond asymmetrically to exchange rates. For instance, the REER change effect is more likely to be driven by a negative appreciation effect than a depreciation effect. Also, Indian firms that have smaller export shares tend to have a stronger response to both REER change and volatility. Compared with those exporting goods, firms that export services are more affected by exchange rate fluctuations. The findings, especially those on asymmetric responses, have important policy implications.

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Bibliographic Info

Article provided by Elsevier in its journal Journal of International Money and Finance.

Volume (Year): 39 (2013)
Issue (Month): C ()
Pages: 231-245

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Handle: RePEc:eee:jimfin:v:39:y:2013:i:c:p:231-245

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Web page: http://www.elsevier.com/locate/inca/30443

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Keywords: Exchange rate fluctuations; Firm-level export shares; Asymmetric effects; Services exports;

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Cited by:
  1. Ana María Iregui & Luis Fernando Melo V. & María Teresa Ramírez, 2013. "Efecto de la volatilidad y del desalineamiento de la tasa de cambio real sobre la actividad de las empresas en Colombia," Borradores de Economia 801, Banco de la Republica de Colombia.
  2. Jérôme Héricourt & Sandra Poncet, 2013. "Exchange rate volatility, financial constraints and trade: empirical evidence from Chinese firms," FIW Working Paper series 112, FIW.
  3. repec:hal:cesptp:halshs-00960664 is not listed on IDEAS
  4. Ana María Iregui B. & Luis Fernando Melo V. & María Teresa Ramírez G. & Carmen Cecilia Delgado R., 2013. "El efecto de la volatilidad y del desalineamiento de la tasa de cambio real sobre la actividad de las empresas en Colombia," BORRADORES DE ECONOMIA 011106, BANCO DE LA REPÚBLICA.

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