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Effects of overvaluation and exchange rate volatility over industrial investment: empirical evidence and economic policy proposals for Brazil

Author

Listed:
  • José Luís Oreiro

    (Professor at Instituto de Economia da Universidade Federal do Rio de Janeiro, Level IB Researcher at CNPq and President of Brazilian Keynesian Association.)

  • Flavio A. C. Basilio

    (PhD in Economics at Universidade de Brasília (UNB) and professor at UDF Centro Universitário.)

  • Gustavo J. G. Souza

    (PhD in Economics at Universidade de Brasília (Unb) and professor at Universidade católica de Brasília (UCB))

Abstract

The present article aims to analyze the recent behavior of real exchange rate in Brazil and its effects over investment per worker in Brazilian manufacturing and extractive industry. Preliminary estimates presented in the article shows an over-valuation of 48% of real exchange rate in Brazil. The reaction between the level (and volatility) of real exchange rate and investment (per worker) in Brazil is analyzed by means of a panel data econometric model for 30 sectors of Brazilian manufacturing and extractive industry. The empirical results show that the level and volatility of real exchange rate has a strong effect over investment per worker in Brazilian industry. Finally, we conclude the article presenting a proposal for a new macroeconomic regime that aims to produce an acceleration of economic growth of Brazilian economy and, by that, a catching-up process with developed countries. JEL Classification: L5; O11; F41.

Suggested Citation

  • José Luís Oreiro & Flavio A. C. Basilio & Gustavo J. G. Souza, 2014. "Effects of overvaluation and exchange rate volatility over industrial investment: empirical evidence and economic policy proposals for Brazil," Brazilian Journal of Political Economy, Center of Political Economy, vol. 34(3), pages 347-369, July.
    • Handle: RePEc:ekm:repojs:v:34:y:2014:i:3:id:95398
    DOI: 10.1590/0101-3157-2014-2482
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    JEL classification:

    • L5 - Industrial Organization - - Regulation and Industrial Policy
    • O11 - Economic Development, Innovation, Technological Change, and Growth - - Economic Development - - - Macroeconomic Analyses of Economic Development
    • F41 - International Economics - - Macroeconomic Aspects of International Trade and Finance - - - Open Economy Macroeconomics

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