Trade Flows, Exchange Rate Uncertainty And Financial Depth: Evidence From 28 Emerging Countries

The authors 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. They estimate a dynamic panel model using system GMM approach and show that for the majority of countries in the sample exchange rate uncertainty affects both South-South and South-North trade negatively. Furthermore, for several cases they discover that this effect is unidirectional, that is South-South or South-North. In addition, they find that while financial depth plays a trade-enhancing role, exchange rate shocks can negate this effect.