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Currency Overvaluation and R&D Spending

Listed author(s):
  • Arthur Korus

    ()

    (Europäisches Institut für Internationale Wirtschaftsbeziehungen (EIIW))

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    This paper investigates the impact of an overvalued currency on R&D spending in manufacturing sectors. In particular, we explore whether a real overvaluation against the US Dollar affects R&D investments in manufacturing sectors of OECD countries. So far the literature has elaborated on either the impact of exchange rate swings on R&D investment or the effect of exchange rate volatility on R&D spending. Thus, to the author's best knowledge, this study is the first which investigates the relationship between real overvaluation and R&D spending. In this paper, we test empirically whether real overvaluation against the US dollar has a direct effect as well as an indirect effect via export activity on R&D investment by using OECD panel data of the manufacturing sectors of 16 OECD countries. We find that real overvaluation against the US dollar both directly and indirectly affects R&D intensities in manufacturing sectors. Furthermore, we have evidence that real overvaluation against the US Dollar caused by monetary policy and financial factors negatively affects R&D intensities in manufacturing sectors.

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    File URL: http://eiiw.eu/fileadmin/eiiw/Daten/Publikationen/Gelbe_Reihe/disbei218.pdf
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    Paper provided by Universitätsbibliothek Wuppertal, University Library in its series EIIW Discussion paper with number disbei218.

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    Length: 45 Pages
    Date of creation: Sep 2016
    Handle: RePEc:bwu:eiiwdp:disbei218
    Contact details of provider: Web page: http://elpub.bib.uni-wuppertal.de

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