Impact of Exchange Rate Movements on Exports: An Analysis of Indian Non-Financial Sector Firms

29 Pages Posted: 2 May 2013

See all articles by Yin-Wong Cheung

Yin-Wong Cheung

City University of Hong Kong - Department of Economics & Finance; University of California, Santa Cruz - Department of Economics; University of California at Santa Cruz - Department of Economics

Rajeswari Sengupta

Institute for Financial Management and Research

Multiple version iconThere are 2 versions of this paper

Date Written: April 30, 2013

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 to 2010. Our empirical analysis reveals that, on average, there has been a strong and significant negative impact of currency appreciation as well as currency volatility on Indian firms’ export shares. The labor costs are found to intensify the exchange rate effects on trade. Further, there is evidence that these Indian firms respond asymmetrically to exchange rates. For instance, the REER change effect is likely to be driven by a negative appreciation effect but not so much 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, the firms that export services are more affected by exchange rate fluctuations. The findings, especially those on asymmetric responses, have important policy implications.

Keywords: exchange rate fluctuations, firm-level export shares, asymmetric effects, services exports

JEL Classification: F100, F400

Suggested Citation

Cheung, Yin-Wong and Sengupta, Rajeswari, Impact of Exchange Rate Movements on Exports: An Analysis of Indian Non-Financial Sector Firms (April 30, 2013). CESifo Working Paper Series No. 4214. Available at SSRN: https://ssrn.com/abstract=2258389

Yin-Wong Cheung (Contact Author)

City University of Hong Kong - Department of Economics & Finance ( email )

83 Tat Chee Avenue
Kowloon
Hong Kong

University of California, Santa Cruz - Department of Economics ( email )

435 Engineering 2
Santa Cruz, CA 95064
United States
831-459-4247 (Phone)
831-459-5077 (Fax)

University of California at Santa Cruz - Department of Economics ( email )

1156 High Street
Santa Cruz, CA 95064
United States

Rajeswari Sengupta

Institute for Financial Management and Research ( email )

24 Kothari Road
Nungambakkam
Chennai, Tamilnadu 600034
India

HOME PAGE: http://ifmr.ac.in/facultyportal/rajeswari/

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