Long-term effects of real exchange rate volatility and institutional quality on economic complexity

Rafael Moraes de Sousa and Michele Veríssimo

Revista CEPAL, 2025

Abstract: This article analyses whether real exchange rate volatility and institutional quality, combined as conditioning variables of the productive specialization of economies, can have a negative impact on a country’s ability to achieve greater economic sophistication, especially in countries with a commodity-dominated and natural resource-based export basket. The methodology used consists of panel cointegration estimation (pooled mean group) using data from 1995 to 2018 for a sample of 54 countries. The results indicate that real exchange rate volatility is indeed an obstacle to the implementation of structural measures aimed at diversification and sophistication of a country’s productive fabric, while the quality of its institutions has a positive effect on its economic complexity and increases the possibilities for developing local capabilities.

Date: 2025-04
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Persistent link: https://EconPapers.repec.org/RePEc:ecr:col070:82406

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