Financial market imperfections and the impact of exchange rate movements on exports.

This paper analyses empirically the role of financial market imperfections in the way countries' exports react to a currency depreciation. Using quarterly data for 27 developed and developing countries over the period 1990-2005, we find that the impact of a depreciation on exports will be less positive - or even negative - for a country if : (i) firms borrow in foreign currency ;(ii) they are credit constrained ; (iii) they are specialized in industries that require more external capital ; (iv) the magnitude of depreciation or devaluation is large. This last result emphasizes the existence of a non-linear relationship between an exchangerate depreciation and the reaction of a country's exports when financial imperfections are observed. This offers a new explanation for the consequences of recent currency crises in middle income countries.