EXCHANGE-RATE REGIME AND SECTORIAL PROFITABILITY IN A SMALL OPEN ECONOMY: A THEORETICAL AND EMPIRICAL ANALYSIS OF ARGENTINA (2016-2023)

Gabriel Montes Rojas, Ariel Dvoskin and German Feldman
Authors registered in the RePEc Author Service: Gabriel Montes-Rojas (gabriel.montes@fce.uba.ar)

No 4673, Asociación Argentina de Economía Política: Working Papers from Asociación Argentina de Economía Política

Abstract: This paper studies, both theoretically and empirically, tradable (T) and non-tradable (N) sectorial profit rates dynamics in a small, price-taker peripheral economy with foreign exchange controls and parallel exchange rate (ER) markets. Using a state-space econometric representation of the Argentine economy for the period 2016-2023, we found evidence to support three main hypotheses derived from the theoretical models. First, an official exchange rate depreciation increases tradable goods profit rates, but has no effect on non-tradeable goods profitability. Second, the rise of the financial exchange rate increases sector N’s profit rate but has no effect on T’s. Moreover, this effect depends on the magnitude of the ER gap in a positive, but in a non-linear way. Third and finally, over sufficient time, both profit rates tend to influence each other, through the action of competition. This means that, eventually, and increase (depreciation) in the official exchange rate exerts its influence in sector N’s profit rate; while, if sufficiently persistent and big enough, a rise in the financial ER ends up affecting sector T’s profit rate too.

JEL-codes: E31 (search for similar items in EconPapers)
Pages: 43 pages
Date: 2023-11
New Economics Papers: this item is included in nep-opm
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (1)

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Related works:
Working Paper: Exchange Rate Regime and Sectorial Profi tability in a Small Open Economy: A Theoretical and Empirical Analysis of Argentina (2016-2022) (2024)
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