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The effects of real exchange rate volatility on productivity growth

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  • Diallo, Ibrahima Amadou

Abstract

This paper employs panel data instrumental variable regression and threshold effect estimation methods to study the link between real effective exchange rate volatility and total factor productivity growth on a sample of 74 countries on six non overlapping sub-periods spanning in total from 1975 to 2004. The results illustrate that real effective exchange rate volatility affects negatively total factor productivity growth. But this effect is not very high. This outcome is corroborated by estimations using an alternative measurement of real effective exchange rate volatility and on a subsample of developed countries. But for developing countries the negative effect of real effective exchange rate volatility is very large. We also found that real effective exchange rate volatility acts on total factor productivity according to the level of financial development. For very low and very high levels of financial development, real exchange rate volatility has no effect on productivity growth but for moderately financially developed countries, real exchange rate volatility reacts negatively on productivity.

Suggested Citation

  • Diallo, Ibrahima Amadou, 2012. "The effects of real exchange rate volatility on productivity growth," MPRA Paper 36171, University Library of Munich, Germany.
  • Handle: RePEc:pra:mprapa:36171
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    1. Sofoklis Vogiazas & Constantinos Alexiou & Orafiri C. Ogan, 2019. "Drivers of the real effective exchange rates in high and upper‐middle income countries," Australian Economic Papers, Wiley Blackwell, vol. 58(1), pages 41-53, March.
    2. repec:eeb:15v1n2:v:1:y:2015:i:2:p:66-84 is not listed on IDEAS

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    More about this item

    Keywords

    real effective exchange rate; volatility; total factor productivity growth; panel data instrumental variable regression; threshold effect estimation; stochastic frontier analysis;
    All these keywords.

    JEL classification:

    • O47 - Economic Development, Innovation, Technological Change, and Growth - - Economic Growth and Aggregate Productivity - - - Empirical Studies of Economic Growth; Aggregate Productivity; Cross-Country Output Convergence
    • F3 - International Economics - - International Finance
    • F41 - International Economics - - Macroeconomic Aspects of International Trade and Finance - - - Open Economy Macroeconomics

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