The Effect on Real Exchange Rate Fluctuation on Total Factor Productivity Growth, Considering Financial Development

Document Type : Original Article

Authors

1 M.A. Student in Economics, Faculty of Managemnt and Economics, Shahid Bahonar University of Kerman

2 Assistant Professor of Economics, Faculty of Managemnt and Economics, Shahid Bahonar University of Kerman

3 Professor of Economics, Faculty of Managemnt and Economics, Shahid Bahonar University of Kerman

Abstract

Investigations of the effects of exchange rate fluctuations on productivity by economists show the importance of this debate in economic literature. There are different, and sometimes, opposite views about this matter. In the present study using panel data method, the relationships between exchange rate fluctuations and total factor productivity growth in the period of 1994 – 2015 for 33 selected countries have been investigated. The results show that the real exchange rate fluctuation has determinate effects on total factor productivity growth. In developing countries, this relationship is strong. Also, it was determined that the relationship between real exchange fluctuation and total factor productivity growth depends on level of financial development. In high level of financial development, real exchange rate fluctuation does not have any effects on factor productivity growth. Nevertheless, in the countries which are at low level of financial development, real exchange fluctuation has negative effect on factor productivity growth.

Keywords


- Aghion, P., Bacchetta, P., Ranciere, R. & Rogoff, K. (2009). Exchange rate volatility and productivity growth: the role of financial development. Journal of Monetary Economics, 56(4), 494-513.
- Akbarian, R. & Heydaripour, S. (2009). The Effect of Financial Market Development on Economic Growth in Iran. Journal of Economic Research, 9, 63-43 (In Persian).
- Amadou, I. D. (2012). The Effects of Real Exchange Rate Volatility on Productivity Growth. MPRA Paper, No. 36171.
- Amini, A. & Hejazi, Z. (2008). Analysis of the Role of Human Capital and R & D in Promoting TFP in Iran's Economy. Journal of Economic Research, 10(35), 30-1 (In Persian).
- Behbodi, D. & Memipour, S. (2007). International Trade, the Leadership on the TFP in Iran. Journal of Modern Economy and Trade, (9), 55-33 (In Persian).
- Bollerslev. T. (1986). Generalized Autoregressive Conditional Hetero Scedasticity. Journal of Econometrics, 31(3), 307-327.
- Borensztein, E., De Gregorio, J. & Lee, J. W. (1998). How does foreign direct investment affect economic growth? Journal of International Economics, 45(1), 115-135.
- Chumacero, R. A. & Fuentes, J. R. (2006). Economic growth in latin America: structural breaks or fundamentals? Estudios de Economia, 33(2), 141-154.
- Engle. R. F. (1982). Autoregressive Conditional Hetero Skedadticity with Estimates of the Variance of UK Inflation. Econometrica, 50, 987-1008.
- Feder, G. (1983). On exports and economic growth. Journal of Development Economics, 12(1), 59-73.
- Findlay, R. (1978). Relative backwardness, direct foreign investment, and the transfer of technology: a simple dynamic model. The Quarterly Journal of Economics, 92(1), 1-16.
- Fuentes, J. R. & Morales, M. (2011). On the measurement of total factor productivity: A latent variable approach. Macroeconomic Dynamics, 15(2), 145-159.
- Hamilton, J. D. (1994). State-space models. Handbook of econometrics, 4, 3039-3080.
- Hansen, B. E. (1999). Threshold effects in non-dynamic panels: Estimation, testing, and inference. Econometrics, 93(2), 345-368.
- Harris, R. G. (2001). Is there a case for exchange rate induced productivity changes? Centre for International Economic Studies.
- Hnatkovska, V. & Loayza, N. (2004). Volatility and growth. World Bank, Development Research Group, Macroeconomics and Growth.
- Kazerouni, A. & Feshari, M. (2010). The Effect of Real Exchange Rate Depreciation on GDP (Case Study of Iran). Journal of Econometrics and Modeling, 1(4), 129-156 (In Persian).
- Koopman, S. J., Shephard, N. & Doornik, J. A. (1999). Statistical algorithms for models in state space using SsfPack 2.2. The Econometrics Journal, 2(1), 107-160.
- Law, M. T. (2000). Productivity and Economic Performance: An Overview of the Issues. Public Policy Sources, No. 37.
- Leibenstein, H. (1966). Allocative efficiency versus X-efficiency. The American Economic Review, 392-415.
- Mbaye, S. (2012). Real Exchange Rate Undervaluation and Growth: Is there a Total Factor Productivity Growth Channel? Working Paper, CERDI,
Etudes et Documents , E 2012.11.
- McLeod, D. & Mileva, E. (2011). Real Exchange Rates and Productivity Growth. Fordham University Department of Economics Discussion Paper Series Discussion Paper, (2011-04), 1-27.
- Mehrara, M. & Ahmadzadeh, E. (2009). Investigating the Role of TFP in Production Growth in Major Economic Sectors of Iran. Journal of Economic Research, 44(2), 208-232 (In Persian).
- Miller, Stephan. M, Upadhyay. P, Mukti. (2000). the effects of openness, trade orientation, and human capital on TFP. Journal of development economics, Working Paper Series number 399.
- Mobarak, A. & Ahmadzadeh, E. (2008). The Effects of Commercial Policies and Oil Revenues on the Productivity of OPEC Selected Countries. New Economy and Trade, 4 (13), 161-141 (In Persian).
- Ramey, G. & Ramey, V. A. (1994). Cross-country evidence on the link between volatility and growth (No. w4959). National Bureau of Economic Research.
- Rezaei, E. (2011). Analysis of the Effects of Institutional Factors on Productivity Growth in Iran's Economy. Journal of Economic Modeling Research, 2(6), 43-60 (In Persian).
- Salmani, B. & Amiri, B. (2009). Financial Development and Economic Growth: The Case of  Developing Countries. Journal of Quantitative Economics, 6(4), 125-145 (In Persian).
- Semlali, M. A. S. (1999). Sources of Economic Growth-An Extensive Growth Accounting Exercise (EPub). International Monetary Fund.
- ShahAbadi, A. (2007). The Effect of  FDI, International Trade and Human Capital on TFP in Iran. Journal of Economic Research, 4(7), 99-134 (In Persian).
- ShirinBakhsh, Sh., Rajabi, M. & AmiriMahani, N. (2009). The Study of  the Asymmetric Convergence of the Real Exchange Rate and Trade Balance in Iran. Economic Modeling, 3(2), 79-94 (In Persian).
- Souri, A. & Khalili, M. (2006). Estimating the Efficiency and Efficiency in Iran's Economy and Its Relationship with Government Expenditures. Journal of Economic Research, (74), 23-1 (In Persian).
- Tavakoli, A. & Siyah, M. (2010). The effect of exchange rate fluctuations on economic activities of the country. Journal of Money and Economy, 2(4), 59-77 (In Persian).
- Tayebi, S.K. & Esmaeili. Razi, H. (2012). Effect of Productivity on Real Effective Exchange Rate in Iranian Economy. Journal of Economic Research, 47(99), 41-60 (In Persian).
- Wang, J. Y. (1990). Growth, technology transfer, and the long-run theory of international capital movements. Journal of International Economics, 29(3), 255-271.