Abstract
This paper empirically examines the role of financial sector development in influencing the impact of exchange rate volatility on the exports of five emerging East Asian countries – China, Indonesia, Malaysia, the Philippines and Thailand – using a GMM‐IV estimation method. The results indicate that the effect of exchange rate volatility on exports is conditional on the level of financial sector development. The less financially developed an economy, the more its exports are adversely affected by exchange rate volatility. In addition, a stable exchange rate seems to be a necessary condition to achieve export promotion via a currency depreciation in these economies.
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