Long-term effects of real exchange rate volatility and institutional quality on economic complexity
Long-term effects of real exchange rate volatility and institutional quality on economic complexity
- Publication type: ECLAC Review
- Author: Sousa, Rafael Moraes de; Veríssimo, Michele Polline
- Physical description: páginas 65-83
- Publisher: ECLAC
- UN symbol (Signature): LC/PUB.2025/1-P
- Date: April, 2025
Abstract
This article analyses whether real exchange rate volatility and institutional quality, combined as conditioning variables of the productive specialization of economies, can have a negative impact on a country’s ability to achieve greater economic sophistication, especially in countries with a commodity-dominated and natural resource-based export basket. The methodology used consists of panel cointegration estimation (pooled mean group) using data from 1995 to 2018 for a sample of 54 countries. The results indicate that real exchange rate volatility is indeed an obstacle to the implementation of structural measures aimed at diversification and sophistication of a country’s productive fabric, while the quality of its institutions has a positive effect on its economic complexity and increases the possibilities for developing local capabilities.