Real exchange rate and Brazilian industry productivity in the long run: theory, model and evidence for the recent period

ABSTRACT

The objective of this work is to analyze the relationship between the real exchange rate and the productivity of the industry in the short and long terms. In order to test the new-developmental hypothesis that a higher level of the real exchange rate is related to a greater dynamism in the productivity of the industry, a mathematical model of this theoretical relationship is developed and an econometrically estimated Non-Linear Autoregressive Distributed Lag Model (NARDL). The results found are unprecedented, since they demonstrate the existence of a positive relationship between a real devaluation of the effective exchange rate and the growth in labor productivity of Brazilian industry in the long run. In addition, the work was able to demonstrate an existing asymmetry of the effect of (de) valuation on productivity, that is, the estimates showed that devaluation positively affects the productivity of Brazilian industry when compared to the negative effects of an appreciation on productivity.

KEYWORDS:
Real exchange rate; productivity; new developmentalism