Real exchange rate and manufacturing growth in Latin America

Authors

  • Paulo Henrique Vaz University of Illinois at Urbana-Champaign
  • Werner Baer University of Illinois at Urbana-Champaign

DOI:

https://doi.org/10.1007/s40503-014-0002-6

Keywords:

Real currency appreciation, De-industrialization, Manufacturing growth, Latin America

Abstract

The manufacturing sectors in Latin America have been more affected by the currency over/undervaluation than their counterpart in industrialized economies. From a panel data set covering 39 countries and 22 manufacturing sectors (2-digit) within 1995–2008, we formally test the hypothesis that there exists a Latin American effect and then investigate the possible reasons for this distinguished pattern. The use of a disaggregated data is an important feature of our empirical strategy: the undervaluation index (main covariate) is less likely to be determined by the growth rate of a specific manufacturing sector, partially addressing the specification problem that plagues standard cross-country regressions. We then explore the within sector–country variation to study the relationship between currency over/undervaluation and manufacturing sectors growth. We find that the import content of exports might be an important driver of this result at a sectoral level. At a macro-level, the openness and the income per capita of a country are important factors.

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Published

2024-06-06

Issue

Section

Regular articles

How to Cite

Real exchange rate and manufacturing growth in Latin America. (2024). Latin American Economic Review, 23, 1-17. https://doi.org/10.1007/s40503-014-0002-6

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