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The effect of exchange rate volatility on productivity of Korean manufacturing plants : Market average rate regime vs free floating

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Title The effect of exchange rate volatility on productivity of Korean manufacturing plants
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Sub Title

Market average rate regime vs free floating

Material Type Reports
Author(English)

Choi, Byungil

Publisher

Sejong, South Korea:Korea Institute For International Economic Policy

Date 2016-10
Series Title; No KIEP Working Paper / 16-08
Pages 50
Subject Country South Korea(Asia and Pacific)
Language English
File Type Documents
Original Format pdf
Subject Economy < Economic System
Industry and Technology < IT
Holding Korea Institute For International Economic Policy
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Abstract

This study examines how exchange rate volatility can influence total factor productivity (TFP) in various dimensions. Using Korean manufacturing plant-level data for 1990-2007, we first compare and contrast the effects of exchange rate volatility on TFPs between two different exchange rate re-gimes―pegged and free floating. We find that the exchange rate volatility had a negative effect on productivity in both regimes but this negative ef-fect was greater during the period when exchange rate fluctuation was re-stricted, compared to the period with free floating rate. We also find that the negative effects of the volatility on productivity were heterogeneous over TFP quantiles and exhibited an inverted W-shape curve. In particular, the negative effects were more pronounced for exporting plants that had the lowest or highest TFPs.