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International Financial Integration and Real Exchange Rate Long-Run Dynamics in Emerging Countries: Some Panel Evidence

Listed author(s):
  • Caporale, Guglielmo Maria

    ()

    (Brunel University)

  • Hadj Amor Essid, Thouraya

    ()

    (Monastir University)

  • Rault, Christophe

    ()

    (University of Orléans)

The aim of this paper 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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Paper provided by Institute for the Study of Labor (IZA) in its series IZA Discussion Papers with number 4038.

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Length: 21 pages
Date of creation: Feb 2009
Publication status: published in: Journal of International Trade and Economic Development, 2011, 20 (6), 789 - 808
Handle: RePEc:iza:izadps:dp4038
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