Real exchange rate and manufacturing growth in Latin America

Paulo Vaz and Werner Baer ()

Latin American Economic Review, 2014, vol. 23, issue 1, 1-17

Abstract: The manufacturing sectors in Latin America have been more affected by the currency over/undervaluation than their counterpart in industrialized economies. From a panel data set covering 39 countries and 22 manufacturing sectors (2-digit) within 1995–2008, we formally test the hypothesis that there exists a Latin American effect and then investigate the possible reasons for this distinguished pattern. The use of a disaggregated data is an important feature of our empirical strategy: the undervaluation index (main covariate) is less likely to be determined by the growth rate of a specific manufacturing sector, partially addressing the specification problem that plagues standard cross-country regressions. We then explore the within sector–country variation to study the relationship between currency over/undervaluation and manufacturing sectors growth. We find that the import content of exports might be an important driver of this result at a sectoral level. At a macro-level, the openness and the income per capita of a country are important factors. Copyright The Author(s) 2014

Keywords: Real currency appreciation; De-industrialization; Manufacturing growth; Latin America; O23; O24; O25 (search for similar items in EconPapers)
Date: 2014
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Citations: View citations in EconPapers (17)

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DOI: 10.1007/s40503-014-0002-6

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