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Exchange Rates, Borrowing Costs and Exports: Firm-Level Evidence

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  • Kwan Yong Lee

    (University of North Dakota)

  • Kanda Naknoi

    (University of Connecticut)

Abstract

This study empirically examines the effects of currency depreciation on the exporting firms' borrowing costs and exports. Using Korean data, first we find novel evidence that unanticipated currency depreciation increases the firm-level real interest rate for firms in sectors importing intermediate inputs. Next, we show that currency depreciation has contractionary effects of rising costs of borrowing and imported inputs, and an expansionary effect of an improvement in price competitiveness. The overall effect of currency depreciation on exports is found to be contractionary, and our estimation has captured the effects of large financial shocks during financial crises.

Suggested Citation

  • Kwan Yong Lee & Kanda Naknoi, 2014. "Exchange Rates, Borrowing Costs and Exports: Firm-Level Evidence," Working papers 2014-18, University of Connecticut, Department of Economics.
    • Handle: RePEc:uct:uconnp:2014-18
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    Cited by:

    1. Mehmet H. TOPAL & Özlem S. GÜL, 2016. "The Effect of Country Risk on Foreign Direct Investment: A Dynamic Panel Data Analysis for Developing Countries," Journal of Economics Library, KSP Journals, vol. 3(1), pages 141-155, March.

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    More about this item

    Keywords

    Balance sheet effect; Exchange rate; Borrowing Costs; Exports;
    All these keywords.

    JEL classification:

    • F14 - International Economics - - Trade - - - Empirical Studies of Trade
    • F31 - International Economics - - International Finance - - - Foreign Exchange
    • F41 - International Economics - - Macroeconomic Aspects of International Trade and Finance - - - Open Economy Macroeconomics

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