Productivity growth and the exchange rate regime: The role of financial development

Philippe Aghion, Philippe Bacchetta, Romain Ranciere and Kenneth Rogoff

Economics Working Papers from Department of Economics and Business, Universitat Pompeu Fabra

Abstract: This paper offers empirical evidence that a country's choice of exchange rate regime can have a signifficant impact on its medium-term rate of productivity growth. Moreover, the impact depends critically on the country's level of financial development, its degree of market regulation, and its distance from the global technology frontier. We illustrate how each of these channels may operate in a simple stylized growth model in which real exchange rate uncertainty exacerbates the negative investment e¤ects of domestic credit market constraints. The empirical analysis is based on an 83 country data set spanning the years 1960-2000. Our approach delivers results that are in striking contrast to the vast existing empirical exchange rate literature, which largely finds the effects of exchange rate volatility on real activity to be relatively small and insignificant.

Keywords: Productivity growth; exchange rate (search for similar items in EconPapers)
JEL-codes: F30 F31 F43 O42 (search for similar items in EconPapers)
Date: 2005-05
New Economics Papers: this item is included in nep-afr, nep-dev, nep-ifn and nep-lam
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (21)

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Working Paper: Productivity Growth and the Exchange Rate Regime: The Role of Financial Development (2005)
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