Currency Overvaluation and R&D Spending

Arthur Korus ()
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Arthur Korus: Europäisches Institut für Internationale Wirtschaftsbeziehungen (EIIW)

No disbei218, EIIW Discussion paper from Universitätsbibliothek Wuppertal, University Library

Abstract: This paper investigates the impact of an overvalued currency on R&D spending in manufacturing sectors. In particular, we explore whether a real overvaluation against the US Dollar affects R&D investments in manufacturing sectors of OECD countries. So far the literature has elaborated on either the impact of exchange rate swings on R&D investment or the effect of exchange rate volatility on R&D spending. Thus, to the author's best knowledge, this study is the first which investigates the relationship between real overvaluation and R&D spending. In this paper, we test empirically whether real overvaluation against the US dollar has a direct effect as well as an indirect effect via export activity on R&D investment by using OECD panel data of the manufacturing sectors of 16 OECD countries. We find that real overvaluation against the US dollar both directly and indirectly affects R&D intensities in manufacturing sectors. Furthermore, we have evidence that real overvaluation against the US Dollar caused by monetary policy and financial factors negatively affects R&D intensities in manufacturing sectors.

Keywords: Real Exchange Rate; Equilibrium Real Exchange Rate; Overvaluation; R&D Intensity; Innovation; OECD countries (search for similar items in EconPapers)
JEL-codes: F31 F41 O32 (search for similar items in EconPapers)
Pages: 45 Pages
Date: 2016-09
New Economics Papers: this item is included in nep-ino
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Persistent link: https://EconPapers.repec.org/RePEc:bwu:eiiwdp:disbei218

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