Export proceeds repatriation policies: A shield against exchange rate volatility in emerging markets?

TL;DR

This study investigates whether mandatory export proceeds repatriation policies stabilize exchange rates in emerging markets, finding no significant impact but acknowledging the possibility of a non-zero effect.

Contribution

It applies the Generalized Synthetic Control method to assess the effect of repatriation policies on exchange rate volatility in multiple emerging economies.

Findings

No statistically significant impact found

Results are robust across various sensitivity analyses

Cannot rule out a non-zero effect

Abstract

We examine the impact of mandatory export proceeds repatriation on exchange rate stability in three emerging markets, Iran, Sri Lanka, and Turkey, using the Generalized Synthetic Control framework. By modeling exchange rate stochastic volatility as our outcome of interest and controlling for interest rate differentials, exchange rate regime shifts, and inflation rate gaps, we address both unobserved time-varying confounders and heterogeneous treatment effects. Our estimates reveal no statistically significant impact of repatriation mandates on exchange-rate volatility across the three countries. We also find that we cannot reject the possibility of a non-zero impact. These results remain robust to an extensive range of sensitivity analyses, including alternative covariate specifications and placebo tests, thereby confirming their reliability.