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Currency Overvaluation and R&D Spending

Author

Listed:
  • Arthur Korus

    (Europäisches Institut für Internationale Wirtschaftsbeziehungen (EIIW))

Abstract

This paper investigates the impact of an overvalued currency on R&D spending in manufacturing sectors. In particular, we explore whether a real overvaluation against the US Dollar affects R&D investments in manufacturing sectors of OECD countries. So far the literature has elaborated on either the impact of exchange rate swings on R&D investment or the effect of exchange rate volatility on R&D spending. Thus, to the author's best knowledge, this study is the first which investigates the relationship between real overvaluation and R&D spending. In this paper, we test empirically whether real overvaluation against the US dollar has a direct effect as well as an indirect effect via export activity on R&D investment by using OECD panel data of the manufacturing sectors of 16 OECD countries. We find that real overvaluation against the US dollar both directly and indirectly affects R&D intensities in manufacturing sectors. Furthermore, we have evidence that real overvaluation against the US Dollar caused by monetary policy and financial factors negatively affects R&D intensities in manufacturing sectors.

Suggested Citation

  • Arthur Korus, 2016. "Currency Overvaluation and R&D Spending," EIIW Discussion paper disbei218, Universitätsbibliothek Wuppertal, University Library.
    • Handle: RePEc:bwu:eiiwdp:disbei218
    as

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    References listed on IDEAS

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    More about this item

    Keywords

    Real Exchange Rate; Equilibrium Real Exchange Rate; Overvaluation; R&D Intensity; Innovation; OECD countries;
    All these keywords.

    JEL classification:

    • F31 - International Economics - - International Finance - - - Foreign Exchange
    • F41 - International Economics - - Macroeconomic Aspects of International Trade and Finance - - - Open Economy Macroeconomics
    • O32 - Economic Development, Innovation, Technological Change, and Growth - - Innovation; Research and Development; Technological Change; Intellectual Property Rights - - - Management of Technological Innovation and R&D

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