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Collateral damage: Dollar strength and emerging markets’ growth

Pablo Druck, Nicolas Magud and Rodrigo Mariscal

The North American Journal of Economics and Finance, 2018, vol. 43, issue C, 97-117

Abstract: We document a negative relation between the strength of the U.S. dollar and emerging markets’ growth: when the dollar is strong, emerging markets’ real GDP growth decreases—and vice versa. The main transmission channel is through (i) an income effect owing to the impact of the dollar on global commodity prices, and (ii) capital/production-inputs imports. As the dollar strengthens, dollar-commodity prices fall, depressing domestic demand growth via lower dollar income, thus reducing emerging markets’ growth. Domestic demand decelerates in countries relying on importing capital/inputs for domestic production, as their cost increases when their currencies weaken, despite any expansionary expenditure-switching effect.

Keywords: Dollar cycles; Emerging markets growth; Income vs. substitution effects (search for similar items in EconPapers)
JEL-codes: F31 F41 F44 (search for similar items in EconPapers)
Date: 2018
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Citations: View citations in EconPapers (14)

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Working Paper: Collateral Damage: Dollar Strength and Emerging Markets’ Growth (2015) Downloads
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Persistent link: https://EconPapers.repec.org/RePEc:eee:ecofin:v:43:y:2018:i:c:p:97-117

DOI: 10.1016/j.najef.2017.10.007

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