Real exchange rates and manufacturing exports in emerging economies: the role of sectoral heterogeneity and product complexity

Thomas Goda, Alejandro Torres-García and Cristhian Larrahondo ()
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Cristhian Larrahondo: Universidad EAFIT

Review of World Economics (Weltwirtschaftliches Archiv), 2024, vol. 160, issue 3, No 11, 1057-1082

Abstract: Abstract The empirical evidence on the relationship between the real exchange rate and export performance in emerging economies is inconclusive. In this paper, we present evidence that one reason for this inconclusiveness is the use of real exchange rate (RER) measures that do not consider the heterogeneity between economic sectors. To this end, we calculate a unique sectoral bilateral RER index (SBRER) for 12 Latin American economies, which considers the variation of producer price differentials and bilateral nominal exchange rates across 21 manufacturing sectors and 38 trade partners between 2001–2018, and to estimate the effect of SBRER movements on manufacturing exports. The regression results show that the SBRER is a significant determinant of aggregate manufacturing exports, whereas the bilateral RER is not significant. Moreover, sectoral export elasticities indicate that mainly sectors with low levels of product complexity and, to a lesser extent, those of medium complexity are affected by RER movements. These findings show that it is important to consider sectoral heterogeneity when estimating RER export elasticities from a macroeconomic perspective.

Keywords: Real exchange rate; Manufacturing exports; Trade; Product complexity; Latin America (search for similar items in EconPapers)
JEL-codes: F14 F31 O14 (search for similar items in EconPapers)
Date: 2024
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DOI: 10.1007/s10290-023-00523-3

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