Exchange Rate Uncertainty and Employment Dynamics: Evidence from India

Abstract

This paper studies the impact of real exchange rate volatility on firm level employment using a dynamic panel data model applied on a panel of 700 Indian manufacturing firms. Real exchange rate volatility is found to have a significant and negative impact on firm level employment growth. Access to domestic equity finance is found to reduce the negative impact of exchange rate uncertainty significantly but the same cannot be said about foreign equity finance. Further, exposure to international trade in the form of exports and imports affects employment dynamics in the face of exchange rate uncertainty.