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Permanent link (DOI): https://doi.org/10.7939/R38973

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Effects of the exchange rate on sectoral profits, value added, wages and employment Open Access

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Other title
Subject/Keyword
Exchange rate, profits, value added, wages, employment, OECD countries
Type of item
Thesis
Degree grantor
University of Alberta
Author or creator
He, Wei
Supervisor and department
Smith, Constance (Economics)
Examining committee member and department
Smith, Constance (Economics)
Liu, Runjun (Business)
Smith, Todd (Economics)
Ural Marchand, Beyza (Economics)
Landon, Stuart (Economics)
Department
Department of Economics
Specialization

Date accepted
2011-09-30T20:34:31Z
Graduation date
2011-11
Degree
Doctor of Philosophy
Degree level
Doctoral
Abstract
This paper investigates the three channels through which real exchange rate variations affect the economy, namely, a profit channel, a value added channel, and a labor-market channel. In this study, both aggregate and sector-level data for 20 OECD countries and a panel-version of the Autoregressive distributed lag – Error-correction model (ARDL-ECM) proposed by Pesaran et al. (2001) are used to examine the responses of real profits, real value added, real wages and employment to movements in the real exchange rate. According to the estimation results, a real currency depreciation, defined as an increase in the real exchange rate, tends to raise real profits for two tradable-good sectors, namely, Agriculture, hunting, forestry and fishing, and Manufacturing, five of the manufacturing subsectors, Total economy, and even two non-tradable-good sectors and two service sector aggregates. However, a negative exchange rate impact on the long-run real profits of Construction and insignificant responses of the other non-tradable-good sectors are also observed. By further examining the exchange rate influences on value added volumes, I find that a real currency depreciation tends to have similar effects on value added volumes as on real profits. As for real wages and employment, a real currency depreciation depresses real wages for both tradable- and non-tradable-good sectors. Employment tends to rise as domestic currency depreciates for Manufacturing and two of its subsectors in the short run, and drop for Construction, and Total services. Thus, one can conclude that a real currency depreciation more often raises profits for the tradable-good sectors, with real value added growth plus the fall in real labor compensation explaining the positive growth in real profits. For the non-tradable-good sectors, two cases should be considered: for Construction, a real currency depreciation causes real value added to drop more than does real labor compensation, resulting in a profit contraction in the long run. For the other non-tradable-good sectors and aggregates, real value added either is unresponsive to real exchange rate variations, or contracts less than does total real labor compensation, thus giving rise to either insignificant or positive profit responses to real exchange rate movements.
Language
English
DOI
doi:10.7939/R38973
Rights
License granted by Wei He (weih@ualberta.ca) on 2011-09-30T14:38:10Z (GMT): Permission is hereby granted to the University of Alberta Libraries to reproduce single copies of this thesis and to lend or sell such copies for private, scholarly or scientific research purposes only. Where the thesis is converted to, or otherwise made available in digital form, the University of Alberta will advise potential users of the thesis of the above terms. The author reserves all other publication and other rights in association with the copyright in the thesis, and except as herein provided, neither the thesis nor any substantial portion thereof may be printed or otherwise reproduced in any material form whatsoever without the author's prior written permission.
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File title: Effects of the Exchange Rate on Sectoral Profits, Value Added, Wages and Employment
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