As part of the Vilfredo Pareto Research Seminar series, the International Economics Department at the Graduate Institute is pleased to invite you to the public talk The Real Exchange Rate, Innovation and Productivity: Regional Heterogeneity, Asymmetries and Hysteresis (joint work with Laura Alfaro, Harald Fadinger and Yanping Liu) given by Alejandro Cuñat, Professor of Economics at the University of Vienna.

Alejandro Cuñat earned his PhD in Economics at Harvard University in 2000. Currently Professor of Economics at the University of Vienna, he is also a Research Fellow at CES-ifo and CeFiG and held appointments at Università Bocconi, LSE, and the University of Essex. His research focuses on international economics, development economics, and macroeconomics.

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. We uncover the following stylized facts: In export-oriented emerging Asia, real depreciations are associated with faster growth of firm-level productivity, higher sales and cash-flow, and higher probabilities to engage in R&D and export. We find negative effects for firms in other emerging economies, which are relatively more import dependent, and no significant effects for firms in industrialized economies. Motivated by these facts, we build a dynamic
model in which real depreciations raise the cost of importing intermediates, affect demand, borrowing-constraints and the profitability of engaging in innovation (R&D). We decompose the effects of RER changes on productivity growth across regions into these channels. We estimate the model and quantitatively evaluate the different mechanisms by providing counterfactual simulations of temporary RER movements and conduct several robustness analyses. Effects on physical TFP growth, while different across regions, are non-linear and asymmetric.