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International Financial Integration and Real Exchange Rate Long-Run Dynamics in Emerging Countries: Some Panel Evidence

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Author Info

  • Caporale, Guglielmo Maria

    ()
    (Brunel University)

  • Hadj Amor Essid, Thouraya

    ()
    (Monastir University)

  • Rault, Christophe

    ()
    (University of Orléans)

Abstract

The aim of this paper is to provide new empirical evidence on the impact of international financial integration on the long-run Real Exchange Rate (RER) in 39 developing countries belonging to three different geographical regions (Latin America, Asia and MENA). It covers the period 1979-2004, and carries out “second-generation” tests for non-stationary panels. Several factors, including international financial integration, are shown to drive the long-run RER in emerging countries. It is found that the new financial environment characterised by international financial integration leads to a depreciation of the RER in the long run. Further, RER misalignments take the form of an under-valuation in most MENA countries and an over-valuation in most Latin American and Asian countries.

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Bibliographic Info

Paper provided by Institute for the Study of Labor (IZA) in its series IZA Discussion Papers with number 4038.

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Length: 21 pages
Date of creation: Feb 2009
Date of revision:
Publication status: published in: Journal of International Trade and Economic Development, 2011, 20 (6), 789 - 808
Handle: RePEc:iza:izadps:dp4038

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Keywords: financial integration; real exchange rate; second-generation panel unit root and cointegration tests; misalignment; emerging economies;

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References

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Cited by:
  1. Mohamed El Hedi Arouri & Adel Ben Youssef & Hatem M'Henni & Christophe Rault, 2012. "Energy Consumption, Economic Growth and CO2 Emissions in Middle East and North African Countries," CESifo Working Paper Series 3726, CESifo Group Munich.
  2. Gelman, Maria & Jochem, Axel & Reitz, Stefan, 2013. "Real financial market exchange rates and capital flows," Discussion Papers 50/2013, Deutsche Bundesbank, Research Centre.
  3. Guglielmo Maria Caporale & Thouraya Hadj Amor & Christophe Rault, 2011. "Sources of Real Exchange Rate Volatility and International Financial Integration: A Dynamic GMM Panel Approach," CESifo Working Paper Series 3645, CESifo Group Munich.
  4. Kearney, Colm, 2012. "Emerging markets research: Trends, issues and future directions," Emerging Markets Review, Elsevier, vol. 13(2), pages 159-183.

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