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Financial Market Imperfections and the Impact of Exchange Rate Movements on Exports

Author

Listed:
  • Nicolas Berman

    (CES - Centre d'économie de la Sorbonne - UP1 - Université Paris 1 Panthéon-Sorbonne - CNRS - Centre National de la Recherche Scientifique)

  • Antoine Berthou

    (CES - Centre d'économie de la Sorbonne - UP1 - Université Paris 1 Panthéon-Sorbonne - CNRS - Centre National de la Recherche Scientifique, CEPII - Centre d'Etudes Prospectives et d'Informations Internationales - Centre d'analyse stratégique)

Abstract

This paper analyzes empirically 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 find that the impact of a depreciation on exports will be less positive--or even negative--for a country if: (i) firms borrow in foreign currency; (ii) they are credit constrained; (iii) they are specialized in industries that require more external capital; (iv) the magnitude of depreciation or devaluation is large. This last result emphasizes the existence of a nonlinear relationship between an exchange rate depreciation and the reaction of a country's exports when financial imperfections are observed. This offers a new explanation for the consequences of recent currency crises in middle-income countries.

Suggested Citation

  • Nicolas Berman & Antoine Berthou, 2009. "Financial Market Imperfections and the Impact of Exchange Rate Movements on Exports," Université Paris1 Panthéon-Sorbonne (Post-Print and Working Papers) hal-00650665, HAL.
    • Handle: RePEc:hal:cesptp:hal-00650665
    DOI: 10.1111/j.1467-9396.2008.00781.x
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    JEL classification:

    • F37 - International Economics - - International Finance - - - International Finance Forecasting and Simulation: Models and Applications
    • F32 - International Economics - - International Finance - - - Current Account Adjustment; Short-term Capital Movements
    • F10 - International Economics - - Trade - - - General

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