The Effect of Productivity on Real Exchange Rate with ‎the Emphasis the Abundance of Skilled and Unskilled ‎Labor

Document Type : Research Paper

Authors

1 Ph.D. Candidate in Economics, Shahid Bahonar University of Kerman

2 Assistant Professor of Economics, Shahid Bahonar University of Kerman

3 Professor of Economics, Shahid Bahonar University of Kerman

Abstract

This article develops the traditional two-part model in which uses labor and capital. That is, in this model, for production are used capital, skilled labor and unskilled labor. It is assumed; tradable sector for production use capital and skilled labor and non-tradable sector use capital and unskilled labor. The main objective of this article is investigation the effects of productivity on the real exchange rate index according to the abundance of skilled and unskilled labor. For this purpose, This article are used pooled data including Iran and trade partners of Iran in the period 2000-2015 using Fixed Effects (FE), Dynamic Ordinary Least Square (DOLS), Fully Modified Ordinary Least Square (FMOLS) and Pooled Mean Group (PMG) methods. The Estimated results show that the increase in productivity will lead to higher (lower) real exchange rate appreciation in countries that have the high abundance of (unskilled) skilled labor.

Keywords

Main Subjects

References

  1. Bahmani-Oskooee, M., and Hyun-Jae-Rhee (1996). Time-series support for Balassa’s productivity-bias hypothesis: Evidence from Korea. Review of International Economics, 4(3), 364-370.
  2. Balassa B. (1964). The purchasing-power parity doctrine: A ‌reappraisal. Journal of Political ‌Economy, 72(6), 584-596.‌
  3. Choudhri, E., and Khan, M.  (2004). Real exchange rates in developing ‌countries: Are Balassa-Samuelson effects present?. IMF Working Paper, WP/04/188.‌
  4. Christopoulos, K., Karine, G., and Leon-Ledesma, M. (2012). Net foreign ‌assets, productivity and real exchange rates in constrained economies. European ‌Economic Review, 56, 295-316.‌
  5. Dehmardeh, N., Safdari, M., and Shahiki-Tash, M. (2010). The effect of macroeconomic indices on income distribution in Iran. Iranian Journal of Trade Studies, 14(54), 25-55 (In Persian).
  6. Dumitru, I., and Jianu, I. (2009).‌The Balassa-Samuelson effect in Romania the role of ‌regulated prices‌. European Journal of Operational Research, 194(3), 873-887.‌
  7. Doan, T., and Gente, K. (2013). Real exchange rate and productivity in ‌an OLG model. Annals of Economics and Statistics, 109-110.‌
  8. Doan, T., and Gente, K. (2014). Real exchange rate and productivity in a specific-factor model with skilled and unskilled labour. Journal of Macroeconomics, 1-15.
  9. Emami Meibodi, A. (2005). Efficiency and (in theory and practice) productivity measurement. Tehran: Institute for Trade Studies and Research (In Persian).
  10. Esmaeili-Razi, H. (2009). Effect of productivity on real effective exchange rate in Iran during 1980-2005 (a test of Balassa-Samuelson effect in Iran). M.A. Thesis, University of Esfahan (In Persian).
  11. Haghighat, J., and Jorkani, H. (2006). The effects of sectoral productivity rates and demand shocks on the real exchange rate in Iran during the 1966-1999. 12(54), 161-178 (In Persian).
  12. Hashempour, Z. (2011). Estimating equilibrium exchange rates for major oil exporting countries 1970-2005. Planning and Budgeting, 16(3), 85-108 (In Persian).
  13. Holub, T., and Cihak, M. (2003). Price convergence: What can the Balassa- ‌Samuelson model tell us?. The Working Paper Series of the Czech National Bank.‌
  14. Ito, T., Isard, P., and Symansky, S. (1999). Economic growth and real ‌exchange rate: An overview of the Balassa Samuelson hypothesis in Asia, changes in exchange rates in rapidly developing countries: ‌Theory, practice, and policy issues. University of Chicago, 109–32.
  15. Johansen, S., and Juselius, K. (1990). Maximum likelihood estimation and inference on cointegration with application to money demand. Oxford Bulletin of Economics and Statistics, 52 (2), 169–210.‌
  16. Jongwanich, J., and Kohpaiboon, A. (2013). Capital flows and real exchange rates in emerging ‌Asian countries. Journal of Asian Economics, 24, 138-146.‌
  17. Kao, C., and Chiang, M. (1999). On the estimation and inference of a cointegrated regression in panel data. Working Paper, Center for Policy Research, Syracuse University, New York, 2.
  18. Nasrollahi, K., and Nasrollahi, Z. (2004). Exchange relationship, the imported and exported domestic real exchange rate and domestic real exchange rate in Iran. The Economic research, 4(13), 67-92 (In Persian).
  19. Nilsson, K. (2002). Do fundamentals explain the behavior of the real effective ‌exchange rate? Working Paper, 78, 4-34.‌
  20. Phillips, P., and Hansen, B. (1990). Statistical inference in instrumental variable regression with I(1) processes. Review of Economic Studies, 57, 99–125.
  21. Rafat, B. (2002). The measurement and analysis of factors of production in manufacturing industry groups. M.A. Thesis, University Of Isfahan (In Persian).
  22. Sabbagh-Kermani, M., and Sheghaghi-Shahri, V. (2005). Factors affecting real exchange rate in Iran (vector regression approach). The Economics Research, 5(16), 37-76 (In Persian).
  23. Schnatz, B., Vijsellaar, F., and Chiara, O. (2004). Productivity and the Euro-‌Dollar exchange rate. Review of World Economics (Weltwirtschaftliches Archive), Springer, 140(1), 1-30.‌
  24. Stock, J., and Watson, M. (1993). A simple estimator of cointegrating vectors in higher order integrated systems. Econometrica, 61, 783-820.
  25. Tayebi, K., and Esmaeili-Razi, H. (2012). Effect of sector productivity on Iran's real effective exchange rate (a test on Balassa-Samuelson effect). Economic Research(Tahghighat-E-Eghtesadi), 47(2), 41-60 (In Persian).

Files

Share

How to cite

Statistics