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Growth under Exchange Rate Volatility: Does Access to Foreign or Domestic Equity Markets Matter?

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  • Demir, Firat

Abstract

Employing a matched employer-employee dataset, this paper explores the effects of exchange rate volatility on the growth performances of domestic versus foreign, and publicly traded versus non-traded private manufacturing firms in a major developing country, Turkey. The empirical results using dynamic panel data estimation techniques and comprehensive robustness tests suggest that exchange rate volatility has a significant growth reducing effect on manufacturing firms. However, having access to foreign, and to a lesser degree, domestic equity markets is found to reduce these negative effects at significant levels. These findings continue to hold after controlling for firm heterogeneity due to differences in export orientation, external indebtedness, profitability, productivity, size, industrial characteristics, and time-variant institutional changes.

Suggested Citation

  • Demir, Firat, 2011. "Growth under Exchange Rate Volatility: Does Access to Foreign or Domestic Equity Markets Matter?," MPRA Paper 37398, University Library of Munich, Germany.
  • Handle: RePEc:pra:mprapa:37398
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    Cited by:

    1. Inekwe John Nkwoma, 2014. "Business Cycle Variability and Growth Linkage," Monash Economics Working Papers 38-14, Monash University, Department of Economics.
    2. Caglayan, Mustafa & Demir, Firat, 2014. "Firm Productivity, Exchange Rate Movements, Sources of Finance, and Export Orientation," World Development, Elsevier, vol. 54(C), pages 204-219.
    3. Ana María Iregui B. & Luis Fernando Melo V. & María Teresa Ramírez G. & Carmen Cecilia Delgado R., 2013. "El efecto de la volatilidad y del desalineamiento de la tasa de cambio real sobre la actividad de las empresas en Colombia," BORRADORES DE ECONOMIA 011106, BANCO DE LA REPÚBLICA.
    4. Lo Turco, Alessia & Maggioni, Daniela, 2013. "Does Trade Foster Employment Growth in Emerging Markets? Evidence from Turkey," World Development, Elsevier, vol. 52(C), pages 1-18.
    5. repec:eee:jebusi:v:93:y:2017:i:c:p:1-14 is not listed on IDEAS
    6. Anubha Dhasmana, 2015. "Transmission of real exchange rate changes to the manufacturing sector: The role of financial access," International Economics, CEPII research center, issue 143, pages 48-69.

    More about this item

    Keywords

    Growth; Foreign Direct Investment; Capital Structure; Exchange Rate Volatility; Manufacturing Sector;

    JEL classification:

    • F22 - International Economics - - International Factor Movements and International Business - - - International Migration
    • G31 - Financial Economics - - Corporate Finance and Governance - - - Capital Budgeting; Fixed Investment and Inventory Studies
    • G15 - Financial Economics - - General Financial Markets - - - International Financial Markets
    • G32 - Financial Economics - - Corporate Finance and Governance - - - Financing Policy; Financial Risk and Risk Management; Capital and Ownership Structure; Value of Firms; Goodwill
    • F31 - International Economics - - International Finance - - - Foreign Exchange

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