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Manufacturing, economic growth, and real exchange rate: Empirical evidence in panel data and input-output multipliers

Luciano Ferreira Gabriel, Luiz Carlos De Santana Ribeiro, Frederico Gonzaga Jayme Jr., José Luis Oreiro
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Abstract

This paper investigates the effects of manufacturing and of the real exchange rate (RER) on real per capita income growth. We use dynamic panel models and the calculation of output and employment multipliers for a diversified sample of countries from 1990 to 2011. Three important results can be highlighted. First, we provide new evidence that manufacturing is the most important tradable sector for achieving greater real per capita income growth for developing countries. Second, the greater a country’s gap in relation to the technological frontier, the greater the positive effect of an undervalued RER on the real per capita incomegrowth rate. Finally, the manufacturing industry’s output multipliers and employment multipliers in the developing countries are higher than those in in developed ones, in all years analyzed.

JEL codes: F43, L16, R15

Keywords

Manufacturing; real exchange rate; economic growth; input-output multipliers