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Exchange rate misalignment and total factor productivity growth in case of emerging market economies

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  • Vaseem Akram

    (Indian Institute of Technology Hyderabad)

  • Badri Narayan Rath

    (Indian Institute of Technology Hyderabad)

Abstract

This paper examines the impact of exchange rate misalignment on total factor productivity growth in case of 15 emerging market economies using the annual data from 1990 to 2014. First, this study through panel cointegration test found a long-run cointegrating relationship between RER misalignment and TFP growth. Second, the DOLS results indicated that RER misalignment has negatively affected the TFP growth in the majority of the countries within the EMEs and the group as a whole too. Third, we found bi-directional panel long-run and short-run Granger causality between real exchange rate misalignment and total factor productivity growth. Finally, in order to check the robustness, the dynamic panel data results showed that RER misalignment has negatively affected the TFP growth, which is consistent with our results derived from the DOLS. Further, when we decomposed the series into pre and post global financial crisis periods, this study found that real exchange rate misalignment did not affect the TFP growth in the pre-global financial crisis, but it has significantly adverse impact on TFP growth after the global financial crisis periods.

Suggested Citation

  • Vaseem Akram & Badri Narayan Rath, 2018. "Exchange rate misalignment and total factor productivity growth in case of emerging market economies," International Economics and Economic Policy, Springer, vol. 15(3), pages 547-564, July.
    • Handle: RePEc:kap:iecepo:v:15:y:2018:i:3:d:10.1007_s10368-017-0374-6
    DOI: 10.1007/s10368-017-0374-6
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    2. Ramos-Herrera, María del Carmen & Sosvilla-Rivero, Simón, 2023. "Economic growth and deviations from the equilibrium exchange rate," International Review of Economics & Finance, Elsevier, vol. 86(C), pages 764-786.

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    More about this item

    Keywords

    Exchange rate misalignments; Total factor productivity; Emerging market economies; Panel cointegration; Panel causality; Panel GMM;
    All these keywords.

    JEL classification:

    • F31 - International Economics - - International Finance - - - Foreign Exchange
    • F31 - International Economics - - International Finance - - - Foreign Exchange
    • O47 - Economic Development, Innovation, Technological Change, and Growth - - Economic Growth and Aggregate Productivity - - - Empirical Studies of Economic Growth; Aggregate Productivity; Cross-Country Output Convergence

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