The Real Exchange Rate, Innovation and Productivity: Heterogeneity, Asymmetries and Hysteresis

Harald Fadinger, Cuñat, Alejandro, Laura Alfaro and Yanping Liu
Authors registered in the RePEc Author Service: Alejandro Cunat

No 12943, CEPR Discussion Papers from C.E.P.R. Discussion Papers

Abstract: We evaluate manufacturing firms' responses to changes in the real exchange rate (RER) using detailed firm-level data for a large set of countries for the period 2001-2010. We uncover the following stylized facts: In export-oriented emerging Asia, real depreciations are associated with higher firm-level probabilities to engage in R\&D, faster growth of firm-level productivity and cash-flow and higher export entry rates. We find negative effects for firms in other emerging economies, which are relatively more import dependent, and no significant effects for firms in industrialized economies. Motivated by these facts, we build a dynamic model in which real depreciations raise the cost of importing intermediates, affect export demand, borrowing-constraints and the profitability of engaging in innovation (R&D). We decompose the effects of RER changes on firm-level productivity growth across regions into these channels. We estimate the model and quantitatively evaluate the different mechanisms by providing counterfactual simulations of temporary RER movements and conduct several robustness analyses. Effects on physical TFP growth, while different across regions, are non-linear and asymmetric.

Keywords: Real exchange rate; Innovation; Productivity; Exporting; Importing; Financial constraints; Firm-level data (search for similar items in EconPapers)
JEL-codes: F12 F14 F31 F41 F43 F47 F63 L16 L52 O14 O24 O33 (search for similar items in EconPapers)
Date: 2018-05
New Economics Papers: this item is included in nep-ino and nep-sea
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (24)

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Working Paper: The Real Exchange Rate, Innovation and Productivity: Heterogeneity, Asymmetries and Hysteresis (2018)
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