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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
Date of revision:
Handle: RePEc:mse:wpsorb:bla06055
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  18. Breitung, Jörg & Pesaran, Mohammad Hashem, 2005. "Unit roots and cointegration in panels," Discussion Paper Series 1: Economic Studies 2005,42, Deutsche Bundesbank, Research Centre.
  19. Maddala, G S & Wu, Shaowen, 1999. " A Comparative Study of Unit Root Tests with Panel Data and a New Simple Test," Oxford Bulletin of Economics and Statistics, Department of Economics, University of Oxford, vol. 61(0), pages 631-52, Special I.
  20. Thomas Chaney, 2013. "Liquidity Constrained Exporters," NBER Working Papers 19170, National Bureau of Economic Research, Inc.
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  37. repec:rus:hseeco:124089 is not listed on IDEAS
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