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Employment and exchange rates: the role of openness and technology

Real exchange rate movements are important drivers of the reallocation of resources between sectors of the economy. Economic theory suggests that the impact of exchange rates should vary with the degree of exposure to internacional competition and with the technology level. This paper contributes by bringing together these two views, both theoretically and empirically. We show the both the degree of openness and the technology level mediate the impact of exchange rate movements on labour market developments. According to our estimations, whereas employment in high-technology sectors seems to be relatively immune to changes in real exchange rates, these appear to have sizable and significant effects on highly open low-technology sectors. The analysis of job flows suggests that the impact of exchange rates on these sectors occurs through employment destruction.

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File URL: http://www3.eeg.uminho.pt/economia/nipe/docs/2009/NIPE_WP_16_2009.PDF
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Paper provided by NIPE - Universidade do Minho in its series NIPE Working Papers with number 16/2009.

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Date of creation: 2009
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Handle: RePEc:nip:nipewp:16/2009
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Núcleo de Investigação em Políticas Económicas, Escola de Economia e Gestão, Universidade do Minho, P-4710-057 Braga, Portugal

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  1. Fernando Alexandre & Pedro Bação & João Cerejeira & Miguel Portela, 2009. "Aggregate and sector-specific exchange rate indexes for the Portuguese economy," Notas Económicas, Faculdade de Economia, Universidade de Coimbra, issue 30, pages 6-28, December.
  2. Klein, Michael W. & Schuh, Scott & Triest, Robert K., 2003. "Job creation, job destruction, and the real exchange rate," Journal of International Economics, Elsevier, vol. 59(2), pages 239-265, March.
  3. Alexandre, Fernando & Bação, Pedro & Cerejeira, João & Portela, Miguel, 2010. "Employment, Exchange Rates and Labour Market Rigidity," IZA Discussion Papers 4891, Institute for the Study of Labor (IZA).
  4. Andrew Bernard & J. Bradford Jensen & Peter Schott, 2003. "Survival of the best fit: exposure to low-wage countries and the (uneven) growth of US manufacturing plants," IFS Working Papers W03/12, Institute for Fiscal Studies.
  5. Alexandre, Fernando & Bação, Pedro & Cerejeira, João & Portela, Miguel, 2009. "Employment and Exchange Rates: The Role of Openness and Technology," IZA Discussion Papers 4191, Institute for the Study of Labor (IZA).
  6. William H. Branson & James Love, 1988. "U.S. Manufacturing and the Real Exchange Rate," NBER Chapters, in: Misalignment of Exchange Rates: Effects on Trade and Industry, pages 241-276 National Bureau of Economic Research, Inc.
  7. Raphael Auer & Andreas M. Fischer, 2008. "The effect of trade with low-income countries on U.S. industry," Globalization and Monetary Policy Institute Working Paper 14, Federal Reserve Bank of Dallas.
  8. Stephen Machin & John Van Reenen, 1998. "Technology and changes in skill structure: evidence from seven OECD countries," IFS Working Papers W98/04, Institute for Fiscal Studies.
  9. João Amador & Sónia Cabral, 2009. "Portuguese International Trade in Services," Economic Bulletin and Financial Stability Report Articles, Banco de Portugal, Economics and Research Department.
  10. Pierre-Olivier Gourinchas, 1999. "Exchange Rates and Jobs: What Do We Learn from Job Flows?," NBER Chapters, in: NBER Macroeconomics Annual 1998, volume 13, pages 153-222 National Bureau of Economic Research, Inc.
  11. Robert C. Feenstra, 1987. "Symmetric Pass-Through of Tariffs and Exchange Rates Under Imperfect Competition: An Empirical Test," NBER Working Papers 2453, National Bureau of Economic Research, Inc.
  12. Thierry Mayer & Philippe Martin & Nicolas Berman, 2010. "How do different exporters react to exchange rate changes? Theory, empirics and aggregate implications," 2010 Meeting Papers 1338, Society for Economic Dynamics.
  13. Jose Manuel Campa & Linda S. Goldberg, 2001. "Employment Versus Wage Adjustment And The U.S. Dollar," The Review of Economics and Statistics, MIT Press, vol. 83(3), pages 477-489, August.
  14. Corsetti, Giancarlo & Dedola, Luca, 2005. "A macroeconomic model of international price discrimination," Journal of International Economics, Elsevier, vol. 67(1), pages 129-155, September.
  15. Wood, Adrian, 1998. "Globalisation and the Rise in Labour Market Inequalities," Economic Journal, Royal Economic Society, vol. 108(450), pages 1463-82, September.
  16. Melitz, Marc J, 2002. "The Impact of Trade on Intra-Industry Reallocations and Aggregate Industry Productivity," CEPR Discussion Papers 3381, C.E.P.R. Discussion Papers.
  17. Wood, Adrian, 1995. "North-South Trade, Employment and Inequality: Changing Fortunes in a Skill-Driven World," OUP Catalogue, Oxford University Press, number 9780198290155, July.
  18. Gourinchas, Pierre-Olivier, 1999. "Exchange rates do matter: French job reallocation and exchange rate turbulence, 1984-1992," European Economic Review, Elsevier, vol. 43(7), pages 1279-1316, June.
  19. João Amador & Sónia Cabral & José R. Maria, 2007. "International Trade Patterns over the Last Four Decades: How does Portugal Compare with other Cohesion Countries?," Working Papers w200714, Banco de Portugal, Economics and Research Department.
  20. Steven J. Davis & John C. Haltiwanger & Scott Schuh, 1998. "Job Creation and Destruction," MIT Press Books, The MIT Press, edition 1, volume 1, number 0262540932, June.
  21. repec:oup:qjecon:v:127:y:2012:i:1:p:437-492 is not listed on IDEAS
  22. Haltiwanger, John C. & Scarpetta, Stefano & Schweiger, Helena, 2006. "Assessing Job Flows across Countries: The Role of Industry, Firm Size and Regulations," IZA Discussion Papers 2450, Institute for the Study of Labor (IZA).
  23. Ekholm, Karolina & Moxnes, Andreas & Ulltveit-Moe, Karen Helene, 2012. "Manufacturing restructuring and the role of real exchange rate shocks," Journal of International Economics, Elsevier, vol. 86(1), pages 101-117.
  24. Joseph Tracy & Linda Goldberg & Stephanie Aaronson, 1999. "Exchange Rates and Employment Instability: Evidence from Matched CPS Data," American Economic Review, American Economic Association, vol. 89(2), pages 204-210, May.
  25. Burgess, Simon M & Knetter, Michael M, 1998. "An International Comparison of Employment Adjustment to Exchange Rate Fluctuations," Review of International Economics, Wiley Blackwell, vol. 6(1), pages 151-63, February.
  26. Pedro Lains, 2008. "The Portuguese Economy in the Irish Mirror, 1960–2004," Open Economies Review, Springer, vol. 19(5), pages 667-683, November.
  27. Morten O. Ravn & Harald Uhlig, 2002. "On adjusting the Hodrick-Prescott filter for the frequency of observations," The Review of Economics and Statistics, MIT Press, vol. 84(2), pages 371-375.
  28. Michael W. Klein & Scott Schuh & Robert K. Triest, 2002. "Job creation, job destruction, and international competition: a literature review," Working Papers 02-7, Federal Reserve Bank of Boston.
  29. Mário Centeno & Álvaro A. Novo & Carla Machado, 2007. "Job Creation and Destruction in Portugal," Economic Bulletin and Financial Stability Report Articles, Banco de Portugal, Economics and Research Department.
  30. Linda S. Goldberg, 2004. "Industry-specific exchange rates for the United States," Economic Policy Review, Federal Reserve Bank of New York, issue May, pages 1-16.
  31. Bound, John & Johnson, George, 1992. "Changes in the Structure of Wages in the 1980's: An Evaluation of Alternative Explanations," American Economic Review, American Economic Association, vol. 82(3), pages 371-92, June.
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