The real exchange rate, innovation and productivity
- Author(s)
- Laura Alfaro, Alejandro Cunat, Harald Fadinger, Yanping Liu
- Abstract
We build a dynamic heterogeneous-firm model in which real depreciations raise export demand and the cost of importing intermediates, and also affect borrowing constraints and the profitability of engaging in research and development (R&D). A number of stylized facts on manufacturing firms for a large set of countries discipline our estimation: Firms in emerging East Asia are very export oriented and rely little on imported intermediates, whereas the opposite holds for Latin America and Eastern Europe; firms from industrialized countries export as much as they import. Exporters experience an increase in cash flow, R&D, and productivity growth in response to real exchange rate (RER) depreciations; importers experience the opposite outcomes. In counterfactual simulations of temporary RER movements, the effects on innovation and productivity growth are heterogeneous across regions, sizeable and persistent. In emerging Asia, real depreciations are associated with higher probabilities to engage in R&D, faster growth of average firm-level productivity and cash flow, and higher export entry rates; we find negative average effects on these outcomes for firms in other emerging economies, and no significant average effects for firms in industrialized economies.
- Organisation(s)
- Department of Economics
- External organisation(s)
- Harvard University, Cornerstone Research, Universität Mannheim
- Journal
- Journal of the European Economic Association
- Volume
- 21
- Pages
- 637-689
- No. of pages
- 53
- ISSN
- 1542-4766
- DOI
- https://doi.org/10.1093/jeea/jvac058
- Publication date
- 2022
- Peer reviewed
- Yes
- Austrian Fields of Science 2012
- 502003 Foreign trade, 502008 Development economics
- Keywords
- ASJC Scopus subject areas
- Economics, Econometrics and Finance(all)
- Portal url
- https://ucrisportal.univie.ac.at/en/publications/86a15216-2b83-4093-a992-babca8f9fe4e