Does Productivity Respond to Exchange Rate Appreciations? A Theoretical and Empirical Investigation

Yao Tang

No 1, Working Papers from Bowdoin College, Department of Economics

Abstract: Although real currency appreciations pose direct difficulties for exporters and import-competing firms as they will face more intense competition, is it possible that such competition spurs firms to improve productivity? To answer this question, the paper first constructs a theoretical model to show how the competitive pressures of currency appreciations induce firms to improve productivity by adopting new technologies. In addition, the model predicts that during appreciations there will be a positive relation between market concentration and improvements in productivity for industries highly exposed to trade, because the marginal benefits of productivity improvement will be bigger for firms with a larger market share. The paper then examines Canadian manufacturing data from 1997 to 2006, and finds evidence consistent with model predictions. I find that growth rates of labor productivity were on average higher during the Canadian dollar appreciation between 2002 and 2006, after controlling for industry characteristics. Within the group of highly traded Canadian industries, the more concentrated ones experienced larger growth in labor productivity.

Keywords: exchange rate appreciation; productivity; technology adoption (search for similar items in EconPapers)
JEL-codes: F3 F4 (search for similar items in EconPapers)
Pages: 48 pages
Date: 2011-06
New Economics Papers: this item is included in nep-eff and nep-ifn
References: Add references at CitEc
Citations: View citations in EconPapers (1)

Downloads: (external link)
http://digitalcommons.bowdoin.edu/econpapers/2/ (application/pdf)

Related works:
This item may be available elsewhere in EconPapers: Search for items with the same title.

Export reference: BibTeX RIS (EndNote, ProCite, RefMan) HTML/Text

Persistent link: https://EconPapers.repec.org/RePEc:bwd:wpaper:2

Access Statistics for this paper

More papers in Working Papers from Bowdoin College, Department of Economics Contact information at EDIRC.
Bibliographic data for series maintained by Elizabeth Weston ( this e-mail address is bad, please contact ).