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

30 Pages Posted: 14 Feb 2018

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: February 2018

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 2006–13, we distinguish between yearly RER movement and persistent RER depreciation during 2007–09 and analyse 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: firm productivity, growth, innovation, Korean firm‐level data, real exchange rate, scale effect

Suggested Citation

Choi, Bo‐Young and Pyun, Ju Hyun, Does Real Exchange Rate Depreciation Increase Productivity? Analysis Using Korean Firm‐Level Data (February 2018). The World Economy, Vol. 41, Issue 2, pp. 604-633, 2018, Available at SSRN: https://ssrn.com/abstract=3122778 or http://dx.doi.org/10.1111/twec.12532

Bo‐Young Choi (Contact Author)

Korea Institute for International Economic Policy

[30147] Building C, Sejong National Research Compl
Seoul, 370
Korea, Republic of (South Korea)

Ju Hyun Pyun

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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