Showing posts from February, 2013

India's manufacturing Exports - Does exchange rate matter?

There was an interesting working paper published by NIPFP recently on the topic "Does weak Rupee matter for India's manufacturing exports?" You can find the abstract here , and the pdf of the full paper here .  I will concentrate on the macro analysis of the paper, about which I have some reservations. The paper analyzes the exchange rate movement from the period 2003 to 2012, against the export growth rate during the same period, and draws the following conclusion: Exchange rate movement doesn't have any positive correlation with exports. In fact, the correlation coefficient is negative, indicating an unconventional result that stands on the head of traditional understanding of weak exchange rate boosting exports. The paper suggests that when the exchange rate depreciates, exports fall, contrary to the traditional expectations.  The Indian exports growth is imports led, as there is a good positive corrleation with imports and exports growth. Therefore, t