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Long-term effects of real exchange rate volatility and institutional quality on economic complexity

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  • Sousa, Rafael Moraes de
  • Veríssimo, Michele Polline

Abstract

This article analyses whether real exchange rate volatility and institutional quality, combined as conditioning variables of the productive specialization of economies, can have a negative impact on a country’s ability to achieve greater economic sophistication, especially in countries with a commodity-dominated and natural resource-based export basket. The methodology used consists of panel cointegration estimation (pooled mean group) using data from 1995 to 2018 for a sample of 54 countries. The results indicate that real exchange rate volatility is indeed an obstacle to the implementation of structural measures aimed at diversification and sophistication of a country’s productive fabric, while the quality of its institutions has a positive effect on its economic complexity and increases the possibilities for developing local capabilities.

Suggested Citation

  • Sousa, Rafael Moraes de & Veríssimo, Michele Polline, 2025. "Long-term effects of real exchange rate volatility and institutional quality on economic complexity," Revista CEPAL, Naciones Unidas Comisión Económica para América Latina y el Caribe (CEPAL), April.
    • Handle: RePEc:ecr:col070:82406
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