Scandinavian Working Papers in Economics
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Institute for Economies in Transition, Bank of Finland BOFIT Discussion Papers, Institute for Economies in Transition, Bank of Finland

No 10/2013:
Impact of exchange rate movements on exports: An analysis of Indian non-financial sector firms

Yin-Wong Cheung () and Rajeswari Sengupta ()

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 from currency appreciation and currency volatility on market shares of India’s exporting firms. Labor costs are found to amplify the exchange- rate effects on trade. Further, there is evidence that the Indian firms considered here respond asymmetrically to exchange rates. A REER change effect, for example, is more likely to arise from a negative appreciation effect than a depreciation effect. Indian firms with smaller export shares tend to respond more strongly to both REER change and volatility than those with larger export shares. Services exporters are impacted more strongly by exchange rate fluctuations than firms exporting goods. The findings on asymmetric responses, in particular, have important policy implications.

Keywords: exchange rate fluctuations; firm-level export shares; asymmetric effects; services exports; (follow links to similar papers)

JEL-Codes: F14; F47; (follow links to similar papers)

31 pages, May 20, 2013

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