Does Real Exchange Rate Depreciation Increase Productivity?: Analysis Using Korean Firm-Level Data

41 Pages Posted: 23 Feb 2017

See all articles by Bo Young Choi

Bo Young Choi

Korea Institute for International Economic Policy

Ju Hyun Pyun

Korea University Business School (KUBS)

Date Written: August 30, 2016

Abstract

We examine the effects of real exchange rate (RER) depreciation shocks on firm productivity. Using the firm-level data of Korean manufacturing industries for 2006–2013, we distinguish between yearly RER movement and persistent RER depreciation during 2007–2009 and analyze how each affects productivity. We find the positive effect of RER depreciation on productivity among exporters and this positive effect increases with higher export exposure. However, the positive productivity gain disappears when the depreciation persists. Our findings suggest that while immediate depreciation leads to productivity upgrade via price competitiveness and scale expansion, persistent depreciation nullifies the productivity gain by slackening the innovation effort.

Keywords: Real exchange rate, Growth, Firm productivity, Korean firm-level data, Scale effect, Innovation

JEL Classification: F12, F14

Suggested Citation

Choi, Bo Young and Pyun, Ju Hyun, Does Real Exchange Rate Depreciation Increase Productivity?: Analysis Using Korean Firm-Level Data (August 30, 2016). Available at SSRN: https://ssrn.com/abstract=2871806 or http://dx.doi.org/10.2139/ssrn.2871806

Bo Young Choi

Korea Institute for International Economic Policy ( email )

Seoul 137-602

Ju Hyun Pyun (Contact Author)

Korea University Business School (KUBS) ( email )

145 Anam-Ro, Seongbuk-Gu
Seoul, 02841
Korea, Republic of (South Korea)
82-2-3290-2610 (Phone)

HOME PAGE: http://sites.google.com/site/juhyunpyun/research

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