The heterogeneous sectoral productivity impacts of FDI on real exchange rate

Fei Guo; Eric Evans Osei Opoku; Isabel Kit Ming Yan

doi:10.1080/09638199.2021.1936135

The heterogeneous sectoral productivity impacts of FDI on real exchange rate

Fei Guo, Eric Evans Osei Opoku, Isabel Kit Ming Yan

Department of Finance, Accounting and Economics

Research output: Journal Publication › Article › peer-review

Abstract

The Balassa-Samuelson effect provides a theoretical explanation for the deviation of the real exchange rate (RER) from its purchasing power parity based on the heterogeneous productivity growth in the tradable and non-tradable sectors. This paper bridges the literature on foreign direct investment (FDI) spillovers with the Balassa-Samuelson effect by theoretically and empirically showing that (1) the productivity impact of inward FDI is notably larger in the tradable sector than in the non-tradable sector, generating an appreciation effect on the RER; (2) the magnitude of heterogeneous productivity impacts of inward FDI in the tradable and non-tradable sectors is commensurate with the technological backwardness in the two sectors relative to the world leaders.

Original language	English
Pages (from-to)	1101-1121
Number of pages	21
Journal	Journal of International Trade and Economic Development
Volume	30
Issue number	7
DOIs	https://doi.org/10.1080/09638199.2021.1936135
Publication status	Published - 3 Oct 2021

Keywords

Tradable and non-tradable sectors
foreign direct investment
productivity impacts
real exchange rate

ASJC Scopus subject areas

Geography, Planning and Development
Development
Aerospace Engineering

UN SDGs

This output contributes to the following UN Sustainable Development Goals (SDGs)

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10.1080/09638199.2021.1936135

Cite this

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abstract = "The Balassa-Samuelson effect provides a theoretical explanation for the deviation of the real exchange rate (RER) from its purchasing power parity based on the heterogeneous productivity growth in the tradable and non-tradable sectors. This paper bridges the literature on foreign direct investment (FDI) spillovers with the Balassa-Samuelson effect by theoretically and empirically showing that (1) the productivity impact of inward FDI is notably larger in the tradable sector than in the non-tradable sector, generating an appreciation effect on the RER; (2) the magnitude of heterogeneous productivity impacts of inward FDI in the tradable and non-tradable sectors is commensurate with the technological backwardness in the two sectors relative to the world leaders.",

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The heterogeneous sectoral productivity impacts of FDI on real exchange rate

Abstract

Keywords

ASJC Scopus subject areas

UN SDGs

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