Do exchange rates affect the capital-labour ratio? Panel evidence from Canadian manufacturing industries

Danny Leung and Terence Yuen

Applied Economics, 2010, vol. 42, issue 20, 2519-2535

Abstract: Using industry-level data for Canadian manufacturing industries from 1981 to 1997, we find empirical evidence of a negative relationship between the capital-labour ratio and the user cost of capital relative to the price of labour. A 10% increase in the user cost of the Machinery and Equipment (M&E) relative to the price of labour results in a 3.3% decrease in the M&E-labour ratio in the long run. Assuming complete exchange rate pass-through into imported M&E prices, the maximum effect of a permanent 10% depreciation in the exchange rate is a 1.7% decline in the M&E-labour ratio. This result implies that the cumulative growth of the M&E-labour ratio during the 1991 to 1997 period would have been 2.3 percentage points higher had the dollar not depreciated. This may appear to be significant, but considering both M&E as a share of total capital and the capital share of nominal output are both approximately one-third, in terms of a simple growth accounting framework, the effect on labour productivity is small.

Date: 2010
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (4)

Downloads: (external link)
http://www.tandfonline.com/doi/abs/10.1080/00036840801964476 (text/html)
Access to full text is restricted to subscribers.

Related works:
Working Paper: Do Exchange Rates Affect the Capital-Labour Ratio? Panel Evidence from Canadian Manufacturing Industries (2005)
This item may be available elsewhere in EconPapers: Search for items with the same title.

Export reference: BibTeX RIS (EndNote, ProCite, RefMan) HTML/Text

Persistent link: https://EconPapers.repec.org/RePEc:taf:applec:v:42:y:2010:i:20:p:2519-2535

Ordering information: This journal article can be ordered from
http://www.tandfonline.com/pricing/journal/RAEC20

DOI: 10.1080/00036840801964476

Access Statistics for this article

Applied Economics is currently edited by Anita Phillips

More articles in Applied Economics from Taylor & Francis Journals
Bibliographic data for series maintained by Chris Longhurst ().