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

Listed author(s):
  • Cheung, Yin-Wong
  • Sengupta, Rajeswari

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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Paper provided by Bank of Finland, Institute for Economies in Transition in its series BOFIT Discussion Papers with number 10/2013.

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Date of creation: 27 May 2013
Publication status: Published in Published in Journal of International Money and Finance, Volume 39, December 2013, Pages 231-245.
Handle: RePEc:bof:bofitp:2013_010
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Bank of Finland, BOFIT, P.O. Box 160, FI-00101 Helsinki, Finland

Phone: + 358 9 183 2268
Fax: + 358 9 183 2294
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