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

  • Mustafa Caglayan

    ()

    (Department of Economics, The University of Sheffield)

  • Omar S. Dahi

    (Hampshire College)

  • Firat Demir

    (University of Oklahoma)

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.

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File URL: http://www.shef.ac.uk/economics/research/serps/articles/2010_011.html
File Function: First version, 2010
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Paper provided by The University of Sheffield, Department of Economics in its series Working Papers with number 2010011.

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Length: 39 pages
Date of creation: May 2010
Date of revision: May 2010
Handle: RePEc:shf:wpaper:2010011
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