Real exchange rate and investment in the Brazilian manufacturing industry
Abstract
Purpose
The purpose of this paper is to study the impact of the real exchange rate on investment in the Brazilian manufacturing industry.
Design/methodology/approach
The authors develop an investment model that considers the effect of changes in the real exchange rate, taking into account that the effect of the real exchange rate on the Brazilian manufacturing investment operates through demand and cost channels. The composition of these effects varies across manufacturing sectors, with different repercussions on investment decisions, depending on sectoral characteristics. A panel data analysis is applied to estimate the model for the Brazilian manufacturing sectors from 1996 to 2010.
Findings
One main result is that the responsiveness of the Brazilian manufacturing investment to real exchange rate varies considerably across manufacturing sectors. Overall, the results contribute to a better understanding of the relationship between exchange rate dynamics, manufacturing investment and industrial development, thus unveiling important empirical elements for the debate on industrial policies to stimulate manufacturing investment and production.
Originality/value
As the (scant) empirical literature on real exchange rate and investment in Brazil has invariably been using aggregate data, this paper contributes to the literature by obtaining sectoral estimates of the responsiveness of manufacturing investment to exchange rate fluctuations that further the understanding of the complex relationship between these economic variables.
Keywords
Acknowledgements
JEL Classification — E22, L60, O54
Citation
Baltar, C.T., Hiratuka, C. and Lima, G.T. (2016), "Real exchange rate and investment in the Brazilian manufacturing industry", Journal of Economic Studies, Vol. 43 No. 2, pp. 288-308. https://doi.org/10.1108/JES-07-2014-0134
Publisher
:Emerald Group Publishing Limited
Copyright © 2016, Emerald Group Publishing Limited