The real exchange rate and industrial investment: new evidence for Brazil

This study empirically investigates the influence exerted by the real exchange rate (RER) on investments in 81 sectors of Brazil’s manufacturing industry, between 2007 and 2018. The work has a number of novel features. First, a more disaggregated database is employed than that commonly found in the...

Full description

Saved in:
Bibliographic Details
Published in:Cambridge journal of economics 2024-07, Vol.48 (4), p.741-766
Main Authors: Iasco-Pereira, Hugo C, Libânio, Gilberto, Missio, Fabrício
Format: Article
Language:English
Citations: Items that this one cites
Online Access:Get full text
Tags: Add Tag
No Tags, Be the first to tag this record!
Description
Summary:This study empirically investigates the influence exerted by the real exchange rate (RER) on investments in 81 sectors of Brazil’s manufacturing industry, between 2007 and 2018. The work has a number of novel features. First, a more disaggregated database is employed than that commonly found in the existing literature. Second, the article’s empirical findings indicate the existence of two competing channels through which a competitive RER may influence sectoral investments, that is: (i) positively, by enhanced exports and (ii) negatively, via more expensive imported inputs. Third, our empirical results also indicate that the RER’s influence is more significant in sectors with a lower mark-up, which means that a competitive RER—caused by expanding revenues from exports, offsets a lack of internal funds to finance new investments. Fourth, we tested the existence of an import penetration channel. The results reveal that a competitive RER increases investments as consumers substitute imported goods with domestic ones.
ISSN:0309-166X
1464-3545
DOI:10.1093/cje/beae020