Real exchange rate and manufacturing growth in Latin America

The manufacturing sectors in Latin America have been more affected by the currency over/undervaluation than their counterpart in industrialized economies. From a panel data set covering 39 countries and 22 manufacturing sectors (2-digit) within 1995–2008, Paulo Henrique Vaz & Werner Baer formally test the hypothesis that there exists a Latin American effect and then investigate the possible reasons for this distinguished pattern. The use of a disaggregated data is an important feature of our empirical strategy: the undervaluation index (main covariate) is less likely to be determined by the growth rate of a specific manufacturing sector, partially addressing the specification problem that plagues standard cross-country regressions. We then explore the within sector–country variation to study the relationship between currency over/undervaluation and manufacturing sectors growth. We find that the import content of exports might be an important driver of this result at a sectoral level. At a macro-level, the openness and the income per capita of a country are important factors.

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Latin American Economic Review aims to be the leading general interest journal on topics relevant to Latin America. The journal welcomes high-quality theoretical and quantitative papers on economic, social and political-economy issues with a regional focus. Articles presenting new data bases or describing structural reforms within a rigorous theoretical framework will also be considered. A few (illustrative) examples of topics that may be of special interest to this journal include: inflation, informal sector, corruption, crime, drug policy, unions, social exclusion, price controls, energy and environmental policy, natural resources, and technology transfer.

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