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Impact of exchange rate move-ments on exports : An analysis of Indian non-financial sector firms

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  • Cheung, Yin-Wong
  • Sengupta, Rajeswari

Abstract

We explore the real effective exchange rate (REER) effects on the share of exports of Indian non-financial sector firms for the period 2000 to 2010. Our empirical analysis reveals that, on average, there has been a strong and significant negative impact from currency appreciation and currency volatility on market shares of India's exporting firms. Labor costs are found to amplify the exchange- rate effects on trade. Further, there is evidence that the Indian firms considered here respond asymmetrically to exchange rates. A REER change effect, for example, is more likely to arise from a negative appreciation effect than a depreciation effect. Indian firms with smaller export shares tend to respond more strongly to both REER change and volatility than those with larger export shares. Services exporters are impacted more strongly by exchange rate fluctuations than firms exporting goods. The findings on asymmetric responses, in particular, have important policy implications. JEL classifications: F1, F4 Keywords: exchange rate fluctuations, firm-level export shares, asymmetric effects, services exports

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  • Cheung, Yin-Wong & Sengupta, Rajeswari, 2013. "Impact of exchange rate move-ments on exports : An analysis of Indian non-financial sector firms," BOFIT Discussion Papers 10/2013, Bank of Finland, Institute for Economies in Transition.
  • Handle: RePEc:bof:bofitp:2013_010
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    Cited by:

    1. Urszula Szczerbowicz, 2015. "The ECB Unconventional Monetary Policies: Have They Lowered Market Borrowing Costs for Banks and Governments?," International Journal of Central Banking, International Journal of Central Banking, vol. 11(4), pages 91-127, December.
    2. Anubha Dhasmana, 2015. "Transmission of real exchange rate changes to the manufacturing sector: The role of financial access," International Economics, CEPII research center, issue 143, pages 48-69.
    3. Khalid Sekkat, 2016. "Export Orientation and Exchange Rate Changes: Do Firms React Differently and Why?," Working Papers 989, Economic Research Forum, revised Apr 2016.
    4. Ronald Miranda & Gabriela Mordecki, 2015. "Real exchange rate volatility impact on exports: A comparative study 1990-2013," Documentos de Trabajo (working papers) 15-18, Instituto de Economía - IECON.
    5. Tscheke, Jan, 2016. "Operational Hedging of Exchange Rate Risks," Discussion Papers in Economics 30227, University of Munich, Department of Economics.
    6. Ashima Goyal & Vaishnavi Sharma, 2017. "Estimating the relationship between the current account, the capital account and investment for India," Indira Gandhi Institute of Development Research, Mumbai Working Papers 2017-016, Indira Gandhi Institute of Development Research, Mumbai, India.
    7. Jérôme Héricourt & Sandra Poncet, 2015. "Exchange Rate Volatility, Financial Constraints, and Trade: Empirical Evidence from Chinese Firms," World Bank Economic Review, World Bank Group, vol. 29(3), pages 550-578.
    8. Tunç, Cengiz & Solakoglu, M. Nihat, 2016. "Does exchange rate volatility matter for international sales? Evidence from US firm level data," Economics Letters, Elsevier, vol. 149(C), pages 152-156.
    9. di Mauro, Filippo & Demian, Calin-Vlad, 2015. "The exchange rate, asymmetric shocks and asymmetric distributions," Working Paper Series 1801, European Central Bank.
    10. Megdam Khalil Ibrahim Khalil & Li Xiumin, 2014. "Identifying the Impact of RMB and SDG Exchange Rate Variability on the Trade Value between China and Sudan (1986-2012)," Journal of Empirical Economics, Research Academy of Social Sciences, vol. 2(3), pages 141-158.
    11. Pasrun Adam & Pasrun Adam & Rosnawintang Rosnawintang & Ambo Wonua Nusantara & Abd Aziz Muthalib, 2017. "A Model of the Dynamic of the Relationship between Exchange Rate and Indonesia’s Export," International Journal of Economics and Financial Issues, Econjournals, vol. 7(1), pages 255-261.
    12. Gabriel Pino & Dilara Tas & Subhash C. Sharma, 2016. "An investigation of the effects of exchange rate volatility on exports in East Asia," Applied Economics, Taylor & Francis Journals, vol. 48(26), pages 2397-2411, June.
    13. Ana María Iregui & Luis Fernando Melo V. & María Teresa Ramírez, 2013. "Efecto de la volatilidad y del desalineamiento de la tasa de cambio real sobre la actividad de las empresas en Colombia," Borradores de Economia 801, Banco de la Republica de Colombia.
    14. repec:kap:sbusec:v:49:y:2017:i:3:d:10.1007_s11187-017-9849-7 is not listed on IDEAS
    15. repec:spr:jqecon:v:15:y:2017:i:2:d:10.1007_s40953-016-0056-1 is not listed on IDEAS
    16. Ana María Iregui B. & Luis Fernando Melo V. & María Teresa Ramírez G. & Carmen Cecilia Delgado R., 2013. "El efecto de la volatilidad y del desalineamiento de la tasa de cambio real sobre la actividad de las empresas en Colombia," BORRADORES DE ECONOMIA 011106, BANCO DE LA REPÚBLICA.
    17. repec:eee:reveco:v:51:y:2017:i:c:p:417-430 is not listed on IDEAS
    18. Jérôme Héricourt & Clément Nedoncelle, 2016. "How Multi-Destination Firms Shape the Effect of Exchange Rate Volatility on Trade: Micro Evidence and Aggregate Implications," Working Papers 2016-05, CEPII research center.
    19. Chiu, Yi-Bin & Sun, Chia-Hung D., 2016. "The role of savings rate in exchange rate and trade imbalance nexus: Cross-countries evidence," Economic Modelling, Elsevier, vol. 52(PB), pages 1017-1025.
    20. BAHMANI-OSKOOEE, Mohsen & HALICIOGLU, Ferda & Neumann, Rebecca, 2016. "Domestic Investment Responses to Changes in the Real Exchange Rate: Asymmetries of Appreciation versus Depreciation," MPRA Paper 82941, University Library of Munich, Germany, revised 10 Apr 2016.
    21. Udo Broll & Soumyatanu Mukherjee, 2016. "International trade and risk aversion elasticities," Discussion Papers 2016-17, University of Nottingham, GEP.
    22. Ashima Goyal & Vaishnavi Sharma, 2017. "Estimating the Relationship between the Current Account, the Capital Account and Investment for India," Working Papers id:12099, eSocialSciences.
    23. repec:ecb:ecbwps:20141801 is not listed on IDEAS
    24. Fatum, Rasmus & Liu, Runjuan & Tong, Jiadong & Xu, Jiayun, 2015. "Beggar thy neighbor or beggar thy domestic firms? evidence from 2000-2011 Chinese customs data," Globalization and Monetary Policy Institute Working Paper 257, Federal Reserve Bank of Dallas.
    25. Jérôme Héricourt & Clément Nedoncelle, 2015. "Relative Real Exchange-Rate Volatility, Multi-Destination Firms and Trade: Micro Evidence and Aggregate Implications," Working Papers 2015-03, CEPII research center.

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    JEL classification:

    • F10 - International Economics - - Trade - - - General
    • F40 - International Economics - - Macroeconomic Aspects of International Trade and Finance - - - General

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