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Financial Market Imperfections and the impact of exchange rate movements on exports

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  • Berthou, Antoine
  • Berman, Nicolas

Abstract

This paper studies the role of financial market imperfections in the way countries' exports react to a currency depreciation. Using quarterly data for 27 developed and developing countries over the period 1990-2005, we show that the impact of a depreciation will be less positive - or even negative - for a country as: (i) firms borrow in foreign currency ; (ii) they are credit constrained ; (iii) they are specialized in industries that require more external capital; (iv) the depreciation's or devaluation's magnitude is large. This last result confirms the existence of a non-linear relationship between an exchange rate depreciation and a country's exports reaction when financial imperfections are observed. This work offers a new explanation for the consequences of recent currency crises in middle income countries.

Suggested Citation

  • Berthou, Antoine & Berman, Nicolas, 2006. "Financial Market Imperfections and the impact of exchange rate movements on exports," Proceedings of the German Development Economics Conference, Berlin 2006 3, Verein für Socialpolitik, Research Committee Development Economics.
  • Handle: RePEc:zbw:gdec06:4726
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    Cited by:

    1. Kohn, David & Leibovici, Fernando & Szkup, Michal, 2020. "Financial frictions and export dynamics in large devaluations," Journal of International Economics, Elsevier, vol. 122(C).
    2. Frohm, Erik, 2023. "Dominant currencies and the export supply channel," International Economics, Elsevier, vol. 173(C), pages 1-18.
    3. Ashis Kumar Pradhan & Gourishankar S Hiremath, 2020. "Do external commercial borrowings and financial development affect exports?," Cogent Business & Management, Taylor & Francis Journals, vol. 7(1), pages 1796269-179, January.
    4. Samba Mbaye, 2012. "Beggar-thy-Neighbor Effects of Currency Undervaluation: Is China the Tip of the Iceberg?," Working Papers halshs-00761380, HAL.
    5. Magda Kandil, 2019. "Variation in nominal and real effective exchange rates: evidence across developed and developing countries," International Review of Economics, Springer;Happiness Economics and Interpersonal Relations (HEIRS), vol. 66(2), pages 181-219, June.
    6. Li, Yifan & Miao, Zhuang & Tuuli, Maxwell, 2022. "Exchange rate volatility and import of intermediate inputs: Evidence from Chinese firms," International Review of Economics & Finance, Elsevier, vol. 82(C), pages 120-134.
    7. n.a.m, Naseem & abu hassan shaari mohd, Nor & tamat, Sarmidi & noor aini, khalifah, 2013. "Exports and Exchange Rate Movements: The Role of Credit Market Imperfections," MPRA Paper 52395, University Library of Munich, Germany.
    8. Kin Tang & Hui Tan & Niaz Naseem, 2013. "The effect of foreign currency borrowing and financial development on exports: a dynamic panel analysis on Asia-Pacific countries," Journal of the Asia Pacific Economy, Taylor & Francis Journals, vol. 18(3), pages 460-476.
    9. David Kohn & Fernando Leibovici & Michal Szkup, 2021. "Financial Frictions and International Trade," Working Papers 2021-009, Federal Reserve Bank of St. Louis.
    10. C. Fritz Foley & Kalina Manova, 2015. "International Trade, Multinational Activity, and Corporate Finance," Annual Review of Economics, Annual Reviews, vol. 7(1), pages 119-146, August.
    11. Dai, Mi & Nucci, Francesco & Pozzolo, Alberto F. & Xu, Jianwei, 2021. "Access to finance and the exchange rate elasticity of exports," Journal of International Money and Finance, Elsevier, vol. 115(C).
    12. Mario Alberto Lagunes Perez & Hector Hugo Perez Villarreal, 2016. "Exchange Rate And Determinants Of Exports In Periods Of Financial Volatility In The North America Free Trade Agreement Zone,Tipo De Cambio Y Determinantes De Las Exportaciones En Periodos De Volatilid," Revista Internacional Administracion & Finanzas, The Institute for Business and Finance Research, vol. 9(2), pages 61-71.
    13. Samba Mbaye, 2012. "Beggar-thy-Neighbor Effects of Currency Undervaluation: Is China the Tip of the Iceberg?," CERDI Working papers halshs-00761380, HAL.
    14. Camila Casas & Sergii Meleshchuk & Yannick Timmer, 2020. "The Dominant Currency Financing Channel of External Adjustment," Borradores de Economia 1111, Banco de la Republica de Colombia.
    15. Christoph Fischer & Oliver Hossfeld & Karin Radeck, 2018. "On the Suitability of Alternative Competitiveness Indicators for Explaining Real Exports of Advanced Economies," Open Economies Review, Springer, vol. 29(1), pages 119-139, February.
    16. Adrian Saville & Douglas Mbululu & Nicola K. Rowbotham, 2014. "Exchange Rate Policy and Export Performance in Efficiency-Driven Economies," Working Papers 469, Economic Research Southern Africa.
    17. Christopoulos, Dimitris & McAdam, Peter & Tzavalis, Elias, 2018. "Dealing with endogeneity in threshold models using copulas: an illustration to the foreign trade multiplier," Working Paper Series 2136, European Central Bank.
    18. Mr. Alexander Culiuc, 2020. "Real Exchange Rate Overshooting in Large Depreciations: Determinants and Consequences," IMF Working Papers 2020/060, International Monetary Fund.
    19. Antoine Berthou & Emannuel Dhyne, 2018. "Exchange rate movements,firm-level exports and heterogeneity," Working Paper Research 334, National Bank of Belgium.
    20. Nazlı Karamollaoğlu & Cihan Yalçin, 2020. "Exports, real exchange rates and dollarization: empirical evidence from Turkish manufacturing firms," Empirical Economics, Springer, vol. 59(5), pages 2527-2557, November.
    21. Berthou, Antoine, 2008. "An investigation on the effect of real exchange rate movements on OECD bilateral exports," Working Paper Series 920, European Central Bank.
    22. Boubellouta Bilal & Muhammad Shahbaz, 2021. "Comparing the Relationship Between Nominal and Real Effective Exchange Rates During the Last Two Devaluations in Algeria," Global Business Review, International Management Institute, vol. 22(6), pages 1421-1440, December.
    23. Juan Esteban Carranza & Camila Casas & Alejandra Ximena González-Ramírez, 2020. "The Colombian peso depreciation of 2014-2015 and the adjustment of trade in the manufacturing sector," Borradores de Economia 1125, Banco de la Republica de Colombia.
    24. Zhang, Teng & Ouyang, Puman, 2018. "Is RMB appreciation a nightmare for the Chinese firms? An analysis on firm profitability and exchange rate," International Review of Economics & Finance, Elsevier, vol. 54(C), pages 27-43.
    25. Mao, R., 2018. "A Firm-Level Reappraisal of Real Exchange Rate Undervaluation in China s Agricultural Exports and Growth," 2018 Conference, July 28-August 2, 2018, Vancouver, British Columbia 276987, International Association of Agricultural Economists.

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    More about this item

    Keywords

    International Trade; Exchange Rate Movements; Financial Development; Financial Market Imperfections;
    All these keywords.

    JEL classification:

    • F37 - International Economics - - International Finance - - - International Finance Forecasting and Simulation: Models and Applications
    • F32 - International Economics - - International Finance - - - Current Account Adjustment; Short-term Capital Movements
    • F10 - International Economics - - Trade - - - General

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