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Real Exchange Rates, Economic Complexity, and Investment
by Steve Brito, Nicolas E. Magud, and Sebastian Sosa

Series:Working Paper No. 18/107
ISBN 9781484354834
Code: #WPIEA2018107

Publication year: 2018

Cdn: $27.00; US: $23.50
Language: English
21 pages
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We show that the response of firm-level investment to real exchange rate movements varies depending on the production structure of the economy. Firms in advanced economies and in emerging Asia increase investment when the domestic currency weakens, in line with the traditional Mundell-Fleming model. However, in other emerging market and developing economies, as well as some advanced economies with a low degree of structural economic complexity, corporate investment increases when the domestic currency strengthens. This result is consistent with Diaz Alejandro (1963)—in economies where capital goods are mostly imported, a stronger real exchange rate reduces investment costs for domestic firms.
Real Exchange Rates, Economic Complexity, and Investment
Cdn: $27.00; US: $23.50
International Monetary Fund (IMF) BookID: 122548 Added: 2018.5.14