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International financial integration and real exchange rate long-run dynamics in emerging countries: Some panel evidence

  • Guglielmo Maria Caporale
  • Thouraya Hadj Amor
  • Christophe Rault

The aim of this article 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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Article provided by Taylor & Francis Journals in its journal The Journal of International Trade & Economic Development.

Volume (Year): 20 (2011)
Issue (Month): 6 (September)
Pages: 789-808

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Handle: RePEc:taf:jitecd:v:20:y:2011:i:6:p:789-808
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