IMF Working Papers Volume 2017 Issue 183: Corporate Investment and the Real Exchange Rate (2017)

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Corporate Investment and the Real Exchange Rate

Author:

Mai Dao

Mai Daonull

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Ms. Camelia Minoiu

Ms. Camelia Minoiu
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, and

Mr. Jonathan David Ostry

Mr. Jonathan David Ostry
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Series:: IMF Working Papers

Volume/Issue:: Volume 2017: Issue 183

Publication Date:: 04 Aug 2017

DOI:: https://doi.org/10.5089/9781484313749.001

ISBN:: 9781484313749

ISSN:: 1018-5941

Pages:: 47

Keywords:: WP; exchange rate; external finance; labor intensity; corporate investment; labor share; real exchange rate; real effects of depreciation; balance sheet channel; firm growth; labor-intensity firm; payroll share; profitability expectation; investment profitability; firm's labor share; unobserved firm-level; firm investment; payroll information; firm balance sheet channel; Depreciation; Financial statements; Financial frictions; Global

Legal-disclaimer:: IMF Working Papers describe research in progress by the author(s) and are published to elicit comments and to encourage debate. The views expressed in IMF Working Papers are those of the author(s) and do not necessarily represent the views of the IMF, its Executive Board, or IMF management.

Series:: IMF Working Papers

Volume/Issue:: Volume 2017: Issue 183

Language:: English

Publication Date:: 04 Aug 2017

DOI:: https://doi.org/10.5089/9781484313749.001

ISBN:: 9781484313749

ISSN:: 1018-5941

Pages:: 47

Keywords:: WP; exchange rate; external finance; labor intensity; corporate investment; labor share; real exchange rate; real effects of depreciation; balance sheet channel; firm growth; labor-intensity firm; payroll share; profitability expectation; investment profitability; firm's labor share; unobserved firm-level; firm investment; payroll information; firm balance sheet channel; Depreciation; Financial statements; Financial frictions; Global

Legal-disclaimer:: IMF Working Papers describe research in progress by the author(s) and are published to elicit comments and to encourage debate. The views expressed in IMF Working Papers are those of the author(s) and do not necessarily represent the views of the IMF, its Executive Board, or IMF management.

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We examine the relationship between real exchange rate depreciations and indicators of firm performance using data for a sample of more than 30,000 firms from 66 (advanced and emerging market) countries over the 2000-2011 period. We show that depreciations boost profits, investment, and sales of firms that are more financially-constrained and have higher labor shares. These findings are consistent with the view that depreciations boost internal financing opportunities by reducing real wages, thereby spurring investment. We show that these effects on firm performance are enduring, including in the market valuation of firms.

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IMF Working Papers

ISSN:: 1018-5941

Publisher:: International Monetary Fund

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