The real exchange rate, innovation and productivity : regional heterogeneity, asymmetries and hysteresis


Alfaro, Laura ; Cunat, Alejandro ; Liu, Yanping ; Fadinger, Harald


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URL: https://ub-madoc.bib.uni-mannheim.de/45052
URN: urn:nbn:de:bsz:180-madoc-450523
Document Type: Working paper
Year of publication: 2018
The title of a journal, publication series: Working Paper Series
Volume: 18-05
Place of publication: Mannheim
Publication language: English
Institution: School of Law and Economics > Internat. Handel, Makroökonomik, Entwicklungsökonomik (Fadinger 2014-)
MADOC publication series: Department of Economics > Working Paper Series
Subject: 330 Economics
Classification: JEL: F , O,
Keywords (English): real exchange rate , innovation , productivity , exporting , importing , financial constraints , firm-level data
Abstract: We evaluate manufacturing firms' responses to changes in the real exchange rate (RER) using detailed firm-level data for a large set of countries for the period 2001-2010. We uncover the following stylized facts: In export-oriented emerging Asia, real depreciations are associated with faster growth of firm-level TFP, higher sales and cash-flow, and higher probabilities to engage in R&D and to export. We find negative effects for firms in other emerging economies, which are relatively more import dependent, and no significant effects for firms in industrialized economies. Motivated by these facts, we build a dynamic model in which real depreciations raise the cost of importing intermediates, affect demand, borrowing-constraints and the profitability of engaging in innovation (R&D). We decompose the effects of RER changes on productivity growth across regions into these channels. We estimate the model and quantitatively evaluate the different mechanisms by providing counterfactual simulations of temporary RER movements and conduct several robustness analyses. Effects on physical TFP growth, while different across regions, are non-linear and asymmetric.




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