Does Productivity Respond to Exchange Rate Appreciations? A Theoretical and Empirical Investigation
AbstractAlthough real currency appreciations pose direct difficulties for exporters and import-competing firms as they will face more intense competition, is it possible that such competition spurs firms to improve productivity? To answer this question, the paper first constructs a theoretical model to show how the competitive pressures of currency appreciations induce firms to improve productivity by adopting new technologies. In addition, the model predicts that during appreciations there will be a positive relation between market concentration and improvements in productivity for industries highly exposed to trade, because the marginal benefits of productivity improvement will be bigger for firms with a larger market share. The paper then examines Canadian manufacturing data from 1997 to 2006, and finds evidence consistent with model predictions. I find that growth rates of labor productivity were on average higher during the Canadian dollar appreciation between 2002 and 2006, after controlling for industry characteristics. Within the group of highly traded Canadian industries, the more concentrated ones experienced larger growth in labor productivity.
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Bibliographic InfoPaper provided by Bowdoin College, Department of Economics in its series Working Papers with number 1.
Length: 48 pages
Date of creation: Jun 2011
Date of revision:
exchange rate appreciation; productivity; technology adoption;
Find related papers by JEL classification:
- F3 - International Economics - - International Finance
- F4 - International Economics - - Macroeconomic Aspects of International Trade and Finance
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- Michel Beine & Charles Bos & Serge Coulombe, 2009.
"Does the Canadian economy suffer from Dutch Disease?,"
CREA Discussion Paper Series
09-06, Center for Research in Economic Analysis, University of Luxembourg.
- Beine, Michel & Bos, Charles S. & Coulombe, Serge, 2012. "Does the Canadian economy suffer from Dutch disease?," Resource and Energy Economics, Elsevier, vol. 34(4), pages 468-492.
- Michel Beine & Charles S. Bos & Serge Coulombe, 2009. "Does the Canadian Economy suffer from Dutch Disease?," Tinbergen Institute Discussion Papers 09-096/4, Tinbergen Institute.
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