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Analyzing the link between real exchange rate and productivity

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  • Diallo, Ibrahima Amadou

Abstract

This paper study, in panel data, the relationship between real exchange rate and total factor productivity on a sample of 68 developed and developing countries for the period 1960-1999. The theoretical part presents the arguments advanced to explain the effects of real exchange rate on productivity, technical efficiency and technological progress. The productivity is obtained as a Solow residual of an estimation of a Cobb-Douglas stochastic production function frontier. The results show that an exchange rate appreciation causes an increase of total factor productivity. The results also illustrates that this effect of real exchange rate on productivity is non linear: threshold effect. Below the threshold exchange rate reacts negatively on productivity while above the threshold it acts positively. Robustness analysis demonstrates that these results hold both in subsamples of developed and developing countries.

Suggested Citation

  • Diallo, Ibrahima Amadou, 2010. "Analyzing the link between real exchange rate and productivity," MPRA Paper 29548, University Library of Munich, Germany.
  • Handle: RePEc:pra:mprapa:29548
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    File URL: https://mpra.ub.uni-muenchen.de/29548/1/MPRA_paper_29548.pdf
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    References listed on IDEAS

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    1. Arellano, Manuel & Bover, Olympia, 1995. "Another look at the instrumental variable estimation of error-components models," Journal of Econometrics, Elsevier, vol. 68(1), pages 29-51, July.
    2. Hansen, Bruce E., 1999. "Threshold effects in non-dynamic panels: Estimation, testing, and inference," Journal of Econometrics, Elsevier, vol. 93(2), pages 345-368, December.
    3. Blundell, Richard & Bond, Stephen, 1998. "Initial conditions and moment restrictions in dynamic panel data models," Journal of Econometrics, Elsevier, vol. 87(1), pages 115-143, August.
    4. Feder, Gershon, 1983. "On exports and economic growth," Journal of Development Economics, Elsevier, vol. 12(1-2), pages 59-73.
    5. Borensztein, E. & De Gregorio, J. & Lee, J-W., 1998. "How does foreign direct investment affect economic growth?1," Journal of International Economics, Elsevier, vol. 45(1), pages 115-135, June.
    6. Manuel Arellano & Stephen Bond, 1991. "Some Tests of Specification for Panel Data: Monte Carlo Evidence and an Application to Employment Equations," Review of Economic Studies, Oxford University Press, vol. 58(2), pages 277-297.
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    More about this item

    Keywords

    O11; O16; O47;

    JEL classification:

    • O11 - Economic Development, Innovation, Technological Change, and Growth - - Economic Development - - - Macroeconomic Analyses of Economic Development
    • O47 - Economic Development, Innovation, Technological Change, and Growth - - Economic Growth and Aggregate Productivity - - - Empirical Studies of Economic Growth; Aggregate Productivity; Cross-Country Output Convergence
    • O16 - Economic Development, Innovation, Technological Change, and Growth - - Economic Development - - - Financial Markets; Saving and Capital Investment; Corporate Finance and Governance

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