Analyzing the link between real exchange rate and productivity

This paper study, in panel data, the relationship between real exchange rate and total factor productivity on a sample of 68 developed and developing countries for the period 1960-1999. The theoretical part presents the arguments advanced to explain the effects of real exchange rate on productivity, technical efficiency and technological progress. The productivity is obtained as a Solow residual of an estimation of a Cobb-Douglas stochastic production function frontier. The results show that an exchange rate appreciation causes an increase of total factor productivity. The results also illustrates that this effect of real exchange rate on productivity is non linear: threshold effect. Below the threshold exchange rate reacts negatively on productivity while above the threshold it acts positively. Robustness analysis demonstrates that these results hold both in subsamples of developed and developing countries.O11, O16, O47

The effects of real exchange rate misalignment and real exchange volatility on exports

This paper uses panel data cointegration techniques to study the impacts of real exchange rate misalignment and real exchange rate volatility on total exports for a panel of 42 developing countries from 1975 to 2004. The results show that both real exchange rate misalignment and real exchange rate volatility affect negatively exports. The results also illustrate that real exchange rate volatility is more harmful to exports than misalignment. These outcomes are corroborated by estimations on subsamples of Low-Income and Middle-Income countries.real effective exchange rate; misalignment; volatility; exports; pooled mean group estimator

Exchange Rate Volatility and Investment, A Panel Data Cointegration Approach

This paper examines the link between the real exchange rate volatility and domestic investment by using the panel data cointegration techniques. In the first part of the paper, we study the theoretical link between the exchange rate, its volatility and the investment in a small open economy. The model shows that the effects of exchange rate volatility on investment are nonlinear. In the second part, we examine the empirical link between the exchange rate volatility and the investment. The results illustrate that the exchange rate volatility has a strong negative impact on investment. This outcome is robust in low income and middle income countries, and by using an alternative measurement of exchange rate volatilityExchange rate volatility; Investment; Appreciation; Depreciation; Panel data cointegration; Dynamic Optimization; Capital goods; Expectations

The effects of real exchange rate volatility on productivity growth

This paper employs panel data instrumental variable regression and threshold effect estimation methods to study the link between real effective exchange rate volatility and total factor productivity growth on a sample of 74 countries on six non overlapping sub-periods spanning in total from 1975 to 2004. The results illustrate that real effective exchange rate volatility affects negatively total factor productivity growth. But this effect is not very high. This outcome is corroborated by estimations using an alternative measurement of real effective exchange rate volatility and on a subsample of developed countries. But for developing countries the negative effect of real effective exchange rate volatility is very large. We also found that real effective exchange rate volatility acts on total factor productivity according to the level of financial development. For very low and very high levels of financial development, real exchange rate volatility has no effect on productivity growth but for moderately financially developed countries, real exchange rate volatility reacts negatively on productivity.real effective exchange rate; volatility; total factor productivity growth; panel data instrumental variable regression; threshold effect estimation; stochastic frontier analysis