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

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Author Info
Berthou, Antoine
Berman, Nicolas

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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. --

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Paper provided by Verein für Socialpolitik, Research Committee Development Economics in its series Proceedings of the German Development Economics Conference, Berlin 2006 with number 3.

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Date of creation: 2006
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Handle: RePEc:zbw:gdec06:4726

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Related research
Keywords: International Trade; Exchange Rate Movements; Financial Development; Financial Market Imperfections;

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Find related papers by JEL classification:
F37 - International Economics - - International Finance - - - International Finance Forecasting and Simulation
F32 - International Economics - - International Finance - - - Current Account Adjustment; Short-term Capital Movements
F10 - International Economics - - Trade - - - General

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