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Real exchange rate and productivity in a specific-factor model with skilled and unskilled labour

Author

Listed:
  • Thi Hong Thinh Doan
  • Karine Gente

    (GREQAM - Groupement de Recherche en Économie Quantitative d'Aix-Marseille - EHESS - École des hautes études en sciences sociales - AMU - Aix Marseille Université - ECM - École Centrale de Marseille - CNRS - Centre National de la Recherche Scientifique)

Abstract

The present study develops a two-sector specific factor model in which capital is mobile between sectors. We assume that the traded (non-traded) sector uses skilled (unskilled) labour for production. The theoretical model reveals that the real exchange rate (RER) response to a productivity shock depends on the countries' relative abundance of skilled labour: a rise in traded productivity leads to a higher RER appreciation in a country whose relative skilled labour rate is high. Using panel data, structural break tests confirm that the skilled versus unskilled labour ratio may be a significant splitting variable. In the long run, the relationship between productivity and RER may be positive or negative, as suggested by the theoretical model, depending on the country's relative abundance of skilled labour.

Suggested Citation

  • Thi Hong Thinh Doan & Karine Gente, 2014. "Real exchange rate and productivity in a specific-factor model with skilled and unskilled labour," Post-Print hal-01474431, HAL.
    • Handle: RePEc:hal:journl:hal-01474431
    DOI: 10.1016/j.jmacro.2014.01.005
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    Cited by:

    1. is not listed on IDEAS
    2. Florian Morvillier, 2020. "Robustness of the Balassa-Samuelson effect: evidence from developing and emerging economies," EconomiX Working Papers 2020-18, University of Paris Nanterre, EconomiX.

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    Keywords

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    JEL classification:

    • E39 - Macroeconomics and Monetary Economics - - Prices, Business Fluctuations, and Cycles - - - Other
    • F32 - International Economics - - International Finance - - - Current Account Adjustment; Short-term Capital Movements
    • F41 - International Economics - - Macroeconomic Aspects of International Trade and Finance - - - Open Economy Macroeconomics

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