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Impact of exchange rate movements on exports: An analysis of Indian non-financial sector firms

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  • Cheung, Yin-Wong
  • Sengupta, Rajeswari

Abstract

We explore the real effective exchange rate (REER) effects on the share of exports of Indian non-financial sector firms for the period 2000–2010. Our empirical analysis reveals that, on average, there has been a strong and significant negative impact from currency appreciation and currency volatility on Indian firms' export shares. Labor costs are found to intensify the exchange rate effects on trade. Further, there is evidence that the Indian firms considered here respond asymmetrically to exchange rates. For instance, the REER change effect is more likely to be driven by a negative appreciation effect than a depreciation effect. Also, Indian firms that have smaller export shares tend to have a stronger response to both REER change and volatility. Compared with those exporting goods, firms that export services are more affected by exchange rate fluctuations. The findings, especially those on asymmetric responses, have important policy implications.

Suggested Citation

  • Cheung, Yin-Wong & Sengupta, Rajeswari, 2013. "Impact of exchange rate movements on exports: An analysis of Indian non-financial sector firms," Journal of International Money and Finance, Elsevier, vol. 39(C), pages 231-245.
    • Handle: RePEc:eee:jimfin:v:39:y:2013:i:c:p:231-245
    DOI: 10.1016/j.jimonfin.2013.06.026
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    More about this item

    Keywords

    Exchange rate fluctuations; Firm-level export shares; Asymmetric effects; Services exports;
    All these keywords.

    JEL classification:

    • F1 - International Economics - - Trade
    • F4 - International Economics - - Macroeconomic Aspects of International Trade and Finance

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