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Trade Flows, Exchange Rate Uncertainty and Financial Depth: Evidence from 28 Emerging Countries

Author

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  • Mustafa Caglayan

    (Department of Economics, The University of Sheffield)

  • Omar S. Dahi

    (Hampshire College)

  • Firat Demir

    (University of Oklahoma)

Abstract

We investigate the effects of real exchange rate uncertainty and financial depth on manufactures exports from 28 emerging economies to the North and South over 1978-2005. We estimate a dynamic panel model using system GMM approach and show that for the majority of countries in our sample exchange rate uncertainty affects both South-South and South-North trade negatively. Furthermore, for several cases we discover that this effect is unidirectional, that is South-South or South-North. In addition, we find that while financial depth plays a trade-enhancing role, exchange rate shocks can negate this effect. We also show that trade among developing economies is likely to enhance export growth.

Suggested Citation

  • Mustafa Caglayan & Omar S. Dahi & Firat Demir, 2010. "Trade Flows, Exchange Rate Uncertainty and Financial Depth: Evidence from 28 Emerging Countries," Working Papers 2010011, The University of Sheffield, Department of Economics, revised May 2010.
    • Handle: RePEc:shf:wpaper:2010011
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    Cited by:

    1. 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.
    2. Demir, Firat, 2013. "Growth under exchange rate volatility: Does access to foreign or domestic equity markets matter?," Journal of Development Economics, Elsevier, vol. 100(1), pages 74-88.
    3. Mustafa Caglayan & Firat Demir, 2011. "Firm productivity, exchange rate movements, sources of finance and export orientationInventories and sales uncertainty," Working Papers 2011004, The University of Sheffield, Department of Economics, revised Feb 2011.
    4. H. Stephen Gardner & Lourenço S. Paz & John Ssozi, 2023. "The influence of international trade on labour productivity in services: The case of Brazil in the 1990s," Review of Development Economics, Wiley Blackwell, vol. 27(1), pages 268-290, February.
    5. Mohd Daud, Siti Nurazira & Ahmad, Abd Halim & Trinugroho, Irwan, 2024. "Financial inclusion, digital technology, and economic growth: Further evidence," Research in International Business and Finance, Elsevier, vol. 70(PB).
    6. Firat Demir & Arslan Razmi, 2022. "The Real Exchange Rate And Development Theory, Evidence, Issues And Challenges," Journal of Economic Surveys, Wiley Blackwell, vol. 36(2), pages 386-428, April.
    7. Grier, Kevin B. & Smallwood, Aaron D., 2013. "Exchange rate shocks and trade: A multivariate GARCH-M approach," Journal of International Money and Finance, Elsevier, vol. 37(C), pages 282-305.

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    More about this item

    Keywords

    Trade flows; Exchange rate uncertainty; South-South trade; Financial depth; Dynamic panel data;
    All these keywords.

    JEL classification:

    • F15 - International Economics - - Trade - - - Economic Integration
    • F31 - International Economics - - International Finance - - - Foreign Exchange
    • G15 - Financial Economics - - General Financial Markets - - - International Financial Markets
    • E44 - Macroeconomics and Monetary Economics - - Money and Interest Rates - - - Financial Markets and the Macroeconomy
    • O14 - Economic Development, Innovation, Technological Change, and Growth - - Economic Development - - - Industrialization; Manufacturing and Service Industries; Choice of Technology

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