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

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Listed author(s):
  • 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.

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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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Keywords: Trade flows; Exchange rate uncertainty; South-South trade; Financial depth; Dynamic panel data;

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Find related papers by 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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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. Mustafa Caglayan & Ozge Kandemir & Kostas Mouratidis, 2011. "Real effects of inflation uncertainty in the US," Working Papers 2011002, The University of Sheffield, Department of Economics, revised Feb 2015.
  5. 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.
  6. Joseph Dery Nyeadi & Oswald Atiga & Charles Amoyea Atogenzoya, 2014. "The Impact of Exchange Rate Movement on Export: Empirical Evidence from Ghana," International Journal of Academic Research in Accounting, Finance and Management Sciences, Human Resource Management Academic Research Society, International Journal of Academic Research in Accounting, Finance and Management Sciences, vol. 4(3), pages 41-48, July.

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