Growth under Exchange Rate Volatility: Does Access to Foreign or Domestic Equity Markets Matter?

Demir, Firat (2011): Growth under Exchange Rate Volatility: Does Access to Foreign or Domestic Equity Markets Matter?

Abstract

Employing a matched employer-employee dataset, this paper explores the effects of exchange rate volatility on the growth performances of domestic versus foreign, and publicly traded versus non-traded private manufacturing firms in a major developing country, Turkey. The empirical results using dynamic panel data estimation techniques and comprehensive robustness tests suggest that exchange rate volatility has a significant growth reducing effect on manufacturing firms. However, having access to foreign, and to a lesser degree, domestic equity markets is found to reduce these negative effects at significant levels. These findings continue to hold after controlling for firm heterogeneity due to differences in export orientation, external indebtedness, profitability, productivity, size, industrial characteristics, and time-variant institutional changes.

• Item Type: MPRA Paper
• Language: English
• Keywords: Growth; Foreign Direct Investment; Capital Structure; Exchange Rate Volatility, Manufacturing Sector
• Subjects: F - International Economics > F2 - International Factor Movements and International Business > F22 - International Migration; G - Financial Economics > G3 - Corporate Finance and Governance > G31 - Capital Budgeting ; Fixed Investment and Inventory Studies ; Capacity; G - Financial Economics > G1 - General Financial Markets > G15 - International Financial Markets; G - Financial Economics > G3 - Corporate Finance and Governance > G32 - Financing Policy ; Financial Risk and Risk Management ; Capital and Ownership Structure ; Value of Firms ; Goodwill; F - International Economics > F3 - International Finance > F31 - Foreign Exchange

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