Corporate Investment and the Real Exchange Rate

55 Pages Posted: 7 Dec 2018

See all articles by Mai Dao

Mai Dao

International Monetary Fund (IMF)

Camelia Minoiu

Federal Reserve Board

Jonathan D. Ostry

International Monetary Fund (IMF)

Multiple version iconThere are 2 versions of this paper

Date Written: November 12, 2018

Abstract

We examine the relationship between real exchange rate depreciations and firm-level investment and growth using data for a sample of more than 30,000 firms from 66 advanced and emerging market countries over the 2000-2011 period. We show that depreciations boost profits, investment, and asset growth of tradable goods producing firms that are relatively financially-constrained and have higher labor shares. These findings are consistent with the view that depreciations boost internal financing opportunities by reducing real product wages, thereby spurring investment. We show that these effects on firm performance are enduring, including in the market valuation of firms.

Keywords: corporate investment, labor share, real exchange rate, real effects of depreciation

JEL Classification: E21, E22, O4

Suggested Citation

Dao, Mai and Minoiu, Camelia and Ostry, Jonathan D., Corporate Investment and the Real Exchange Rate (November 12, 2018). Available at SSRN: https://ssrn.com/abstract=3284171 or http://dx.doi.org/10.2139/ssrn.3284171

Mai Dao

International Monetary Fund (IMF) ( email )

700 19th Street, N.W.
Washington, DC 20431
United States

Camelia Minoiu (Contact Author)

Federal Reserve Board ( email )

20th Street and Constitution Avenue NW
Washington, DC 20551
United States

Jonathan D. Ostry

International Monetary Fund (IMF) ( email )

700 19th Street NW
Washington, DC 20431
United States

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