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Financial market imperfections and the impact of exchange rate movements on exports

This paper analyses 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 non-linear relationship between an exchangerate 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.

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File URL: ftp://mse.univ-paris1.fr/pub/mse/cahiers2006/Bla06055.pdf
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Paper provided by Université Panthéon-Sorbonne (Paris 1) in its series Cahiers de la Maison des Sciences Economiques with number bla06055.

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Length: 25 pages
Date of creation: Jul 2006
Handle: RePEc:mse:wpsorb:bla06055
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