The Effects of Real Exchange Rate Volatility on Productivity Growth

Ibrahima Diallo

Eastern European Business and Economics Journal, 2015, vol. 1, issue 2, 66-84

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. The results illustrate that real effective exchange rate volatility negatively affects 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.

Keywords: real effective exchange rate; volatility; total factor productivity growth; panel data instrumental variable regression; threshold effect estimation; stochastic frontier analysis (search for similar items in EconPapers)
Date: 2015
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Citations: View citations in EconPapers (2)

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Working Paper: The effects of real exchange rate volatility on productivity growth (2012)
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