Real exchange rate and manufacturing growth in Latin America

Paulo Henrique Vaz, Werner Baer

Research output: Contribution to journalArticle

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.

Original languageEnglish (US)
Article number2
JournalLatin American Economic Review
Volume23
Issue number1
DOIs
StatePublished - Dec 1 2014

Keywords

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

ASJC Scopus subject areas

  • Economics, Econometrics and Finance(all)

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