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Seminarios académicos y conferencias

Laura Alfaro, Harvard Business School

The Real Exchange Rate, Innovation and Productivity: A Cross-country Firm-level Analysis

26 Octubre 2017 - 11:30 hrs

Sala de postgrado, Facultad de Ciencias Económicas y Administrativas UC

Abstract: We evaluate manufacturing firms’ responses to changes in the real exchange rate (RER) using detailed firm-level data for a large set of countries for the period 2001-2010. In emerging East Asia, real depreciations are associated with faster growth of firm-level TFP, sales and cash-flow, higher probabilities to engage in R&D and export. We find no significant effects for firms from industrialized economies and negative effects for firms in other developing countries, which are less export intensive and more import intensive. We build a dynamic model in which real depreciations raise the cost of importing intermediates, but increase demand and the profitability to engage in exports and R&D, thereby relaxing borrowing constraints and enabling more firms to overcome the fixed-cost hurdle for financing R&D. We decompose the effects of RER changes on productivity growth into these channels and explain regional heterogeneity in the effects of RER depreciations in terms of differences in export intensity, import intensity and financial constraints. We estimate the model and evaluate the different mechanisms by providing counterfactual simulations.

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