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EsTrade Flows, Exchange Rate Uncertainty, and Financial Depth: Evidence from 28 Emerging Countries

  • Mustafa Caglayan

    ()

    (School of Management and Languages, Heriot-Watt University, Edinburgh, EH14 4AS, UK;)

  • Omar S. Dahi

    ()

    (School of Critical Social Inquiry, Hampshire College, Amherst, MA 01002, USA; E-mail: odahi@hampshire.edu)

  • Firat Demir

    ()

    (Department of Economics, University of Oklahoma, 436 Cate Center I, 308 Cate Center Drive, Norman, OK 73019, USA; Tel: +1-405-325-5844; Fax: +1-405-325-5842; corresponding author)

This article investigates the effects of real exchange rate uncertainty on manufactures exports from 28 emerging economies, representing 82% of all developing country manufactures exports, and explores the sources of heterogeneity in the uncertainty effects by controlling for the direction of trade (south-north or south-south), and the level of financial development of the exporting country. The empirical results show that for more than half of the countries, the uncertainty effect is unidirectional, either south-south or south-north, and the median impact is negative. In addition, while we find that financial development augments trade, exchange rate shocks can negate this effect. Last but not least, trade among developing economies improves export growth under exchange rate shocks.

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File URL: http://dx.doi.org/10.4284/0038-4038-2011.174
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Article provided by Southern Economic Association in its journal Southern Economic Journal.

Volume (Year): 79 (2013)
Issue (Month): 4 (April)
Pages: 905-927

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Handle: RePEc:sej:ancoec:v:79:4:y:2013:p:905-927
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