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Exchange rate undervaluation and R&D activity

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  • Chen, Shiu-Sheng

Abstract

We examine how real exchange rate undervaluation policy affects research and development (R&D) activity. Using a panel data set comprising 49 developed and developing countries covering 1996–2011, we show that undervaluing the exchange rate retards technological innovation. Such a negative impact is particularly prominent for developed countries. This paper provides new insights into the real effects of undervaluation policy on the economy. An implication of our work is that countries implementing exchange rate undervaluation policy should be mindful of its potential negative effects on research and development activity.

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  • Chen, Shiu-Sheng, 2017. "Exchange rate undervaluation and R&D activity," Journal of International Money and Finance, Elsevier, vol. 72(C), pages 148-160.
    • Handle: RePEc:eee:jimfin:v:72:y:2017:i:c:p:148-160
    DOI: 10.1016/j.jimonfin.2017.01.008
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    Cited by:

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    2. Saleh S. Tabrizy, 2020. "Industrial research and development and real exchange rate depreciation in a small open economy," The World Economy, Wiley Blackwell, vol. 43(9), pages 2490-2523, September.
    3. Amor, Thouraya Hadj & Nouira, Ridha & Rault, Christophe & Sova, Anamaria Diana, 2023. "Real exchange rate misalignments and economic growth in Tunisia: New evidence from a threshold analysis of asymmetric adjustments," The Quarterly Review of Economics and Finance, Elsevier, vol. 88(C), pages 215-227.
    4. Abdul Jalil, 2021. "Exchange Rate Policy Must Seek Undervaluation!," The Pakistan Development Review, Pakistan Institute of Development Economics, vol. 60(1), pages 85-91.
    5. Morvillier, Florian, 2020. "Do currency undervaluations affect the impact of inflation on growth?," Economic Modelling, Elsevier, vol. 84(C), pages 275-292.
    6. Florian Morvillier, 2018. "The role of exchange rate undervaluations on the inflation-growth nexus," Working Papers hal-04141804, HAL.
    7. Florian Morvillier, 2018. "The role of exchange rate undervaluations on the inflation-growth nexus," EconomiX Working Papers 2018-15, University of Paris Nanterre, EconomiX.
    8. Mao, R., 2018. "A Firm-Level Reappraisal of Real Exchange Rate Undervaluation in China s Agricultural Exports and Growth," 2018 Conference, July 28-August 2, 2018, Vancouver, British Columbia 276987, International Association of Agricultural Economists.
    9. Yu-Hsi Chou & Chun-Yen Tsai, 2021. "Sources of current account fluctuations in Taiwan: 1989–2015," Empirical Economics, Springer, vol. 60(4), pages 2125-2151, April.

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    More about this item

    Keywords

    Research and development; Undervaluation policy;

    JEL classification:

    • F31 - International Economics - - International Finance - - - Foreign Exchange
    • O31 - Economic Development, Innovation, Technological Change, and Growth - - Innovation; Research and Development; Technological Change; Intellectual Property Rights - - - Innovation and Invention: Processes and Incentives
    • F38 - International Economics - - International Finance - - - International Financial Policy: Financial Transactions Tax; Capital Controls

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