Modern services, real exchange rate and economic growth

PEREIRA, WALLACE MARCELINO; MISSIO, FABRICIO J.; JAYME JR., FREDERICO GONZAGA

doi:10.1590/0101-31572025-3562

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ARTICLE • Brazil. J. Polit. Econ. 45 (1) • 2025 • https://doi.org/10.1590/0101-31572025-3562 linkcopy

Modern services, real exchange rate and economic growth

Serviços modernos, taxa real de câmbio e crescimento econômico

Authorship SCIMAGO INSTITUTIONS RANKINGS

This paper explores the effects of changes in the real exchange rate (RER) level on the performance of the modern services sector. The hypothesis is that sustaining a competitive RER contributes to improving the performance of modern services. To do so, we estimated econometric models based on the Generalized Method of Moments (GMM) for a sample of 24 countries between 2000 and 2014. The results suggest that the RER positively affects the modern services sector in terms of output, employment, and a structural change index.

KEYWORDS:
Economic growth; real exchange rate; structural change; modern services

Description of indicators	Variables	Source
Index of Structural Change in Services	sci _ms	WIOD
International Relative Servitization Index (Employment)	irsi _e	WIOD
International Relative Servitization Index (Gross Domestic Product)	irsi _gdp	WIOD
Real exchange rate weighted by 171 trading partners	rer (171)	Bruegel datasets
Real exchange rate weighted by 66 trading partners	rer (66)	Bruegel datasets
Real exchange rate weighted by 30 trading partners	rer (30)	CEPII
Real exchange rate weighted by 186 trading partners	rer (186)	CEPII
Real exchange rate weighted by 30 alternating trading partners	rer (30a)	CEPII
Real exchange rate weighted by 186 alternating trading partners	rer (186a)	CEPII
Manufacturing productivity (Value Added ratio per employed person - VA/PO)	manup	WIOD
Labour Share	lsh	WIOD
Degree of openness of the economy	open	World Bank data
Population	pop	World Bank data

	(rer171)	(rer66)	(rer30)	(rer30a)	(rer186)	(rer186a)
lnscims [t-1]	0.2311** (0.100)	0.2256** (0.100)	0.3003** (0.132)	0.3005** (0.132)	0.2953** (0.134)	0.3021** (0.138)
rer	-0.0463** (0.020)	-0.0380** (0.015)	-0.0774** (0.036)	-0.0776** (0.036)	-0.0812** (0.039)	-0.0738** (0.037)
manupg [t-1]	1.3401*** (0.484)	1.1899*** (0.398)	1.4298*** (0.507)	1.4298*** (0.507)	1.4879*** (0.548)	1.3984*** (0.529)
lshg [t-1]	-0.5627 (0.988)	-0.7944 (0.924)	-1.1948 (1.071)	-1.1972 (1.071)	-1.2959 (1.067)	-1.3412 (1.069)
openg [t-1]	-1.5365*** (0.563)	-1.4633*** (0.541)	-1.4018* (0.801)	-1.4044* (0.801)	-1.3992* (0.802)	-1.3348* (0.779)
popg [t-1]	0.7182* (0.378)	0.6884** (0.330)	0.3752* (0.225)	0.3744* (0.225)	0.3982* (0.226)	0.4002* (0.224)
Const.	3.0987* (1.764)	2.2970* (1.310)	6.3609* (3.339)	6.3713* (3.344)	6.7543* (3.720)	5.9953* (3.465)
Observations	312	312	312	312	312	312
Instruments	10	10	10	10	10	10
Arellano-Bond test for AR (2) in first difference (p-value)	0.3312	0.4172	0.3823	0.3774	0.3602	0.4520
Hansen test of joint validity of instruments (p-value) ansenp	0.8603	0.8821	0.6399	0.6409	0.6505	0.5862

	(rer171)	(rer66)	(rer30)	(rer30a)	(rer186)	(rer186a)
lnscims [t-1]	0.2668*** (0.091)	0.2616*** (0.090)	0.2102* (0.121)	0.2100* (0.121)	0.2022* (0.112)	0.2089* (0.112)
rer	-0.0422*** (0.016)	-0.0371*** (0.013)	-0.0697** (0.030)	-0.0699** (0.030)	-0.0726** (0.035)	-0.0651** (0.032)
lnscimanu [t-1]	0.0985** (0.048)	0.0891* (0.049)	0.1332*** (0.046)	0.1336*** (0.046)	0.1372*** (0.036)	0.1356*** (0.036)
manupg [t-1]	1.1179* * (0.384)	1.0101*** (0.377)	1.6820** (0.747)	1.6841** (0.748)	2.1177** (0.991)	1.9973** (0.973)
lshg [t-1]	-2.1032*** (0.741)	-2.1054*** (0.749)	-1.4157 (0.951)	-1.4137 (0.951)	-1.4432 (0.976)	-1.4787 (0.941)
openg [t-1]	-0.9610 (0.677)	-1.0001 (0.671)	-2.1107 (1.476)	-2.1144 (1.477)	-2.3441 (1.849)	-1.9790 (1.746)
popg [t-1]	0.4375** (0.215)	0.4070** (0.205)	0.3842* (0.198)	0.3839* (0.198)	0.4149** (0.183)	0.4036**(0.18 7)
Const.	2.8789* (1.578)	2.3612* (1.249)	5.5680* (2.858)	5.5849* (2.869)	5.8598* (3.291)	5.0850* (3.026)
Observations	312	312	312	312	312	312
Instruments	14	14	12	12	12	12
Arellano-Bond test for AR (2) in first difference (p-value)	0.7914	0.8012	0.7543	0.7490	0.6648	0.8245
Hansen test of joint validity of instruments (p-value) hansenp	0.8100	0.8388	0.6900	0.6927	0.6805	0.6522

	(rer171)	(rer66)	(rer30)	(rer30a)	(rer186)	(rer186a)
[t-1]	1.1868*** (0.047)	1.2399*** (0.105)	1.2052*** (0.067)	1.2053*** (0.067)	1.1921*** (0.065)	1.1992*** (0.061)
rer	-0.0026** (0.001)	-0.0031** (0.001)	-0.0022** (0.001)	-0.0022** (0.001)	-0.0024** (0.001)	-0.0022** (0.001)
manupg [t-1]	0.3434*** (0.096)	0.7272*** (0.186)	0.3376** (0.160)	0.3378** (0.160)	0.3478** (0.163)	0.3606** (0.150)
lshg [t-1]	-0.0388 (0.310)	-0.6566 (1.535)	-0.3488 (0.360)	-0.3490 (0.360)	-0.0829 (0.918)	-0.3645 (0.387)
openg [t-1]	-0.3423** (0.144)	-0.5225** (0.220)	-0.2580* (0.143)	-0.2578* (0.144)	-0.2482* (0.145)	-0.2702** (0.123)
popg [t-1]	-0.0004 (0.001)	1.3675 (3.708)	1.5495 (2.450)	1.5585 (2.459)	2.4430 (2.716)	1.7593 (2.232)
Const.	0.2798*** (0.100)	0.2948** (0.129)	0.2302*** (0.087)	0.2302*** (0.087)	0.2546** (0.112)	0.2346** (0.095)
Observations	312	312	312	312	312	312
Instruments	10	10	10	10	10	10
Arellano-Bond test for AR (2) in first difference (p-value)	0.0905	0.6517	0.1028	0.1031	0.1429	0.1035
Hansen test of joint validity of instruments (p-value) hansenp	0.2788	0.8919	0.8049	0.8043	0.7575	0.8256

	(rer171)	(rer66)	(rer30)	(rer30a)	(rer186)	(rer186a)
[t-1]	1.0262*** (0.023)	1.0273*** (0.022)	1.0177*** (0.034)	1.0177*** (0.034)	1.0193*** (0.034)	1.0258*** (0.028)
rer	-0.0021*** (0.001)	-0.0018*** (0.001)	-0.0034** (0.002)	-0.0034** (0.002)	-0.0037** (0.002)	-0.0032** (0.001)
manupg [t-1]	0.1338** (0.054)	0.1571*** (0.059)	0.1236* (0.074)	0.1238* (0.074)	0.1261* (0.073)	0.1250* (0.072)
lshg [t-1]	0.1498 (0.101)	0.1452 (0.102)	0.1711 (0.105)	0.1714 (0.105)	0.1731 (0.106)	0.1767 (0.111)
openg [t-1]	-0.1338*** (0.034)	-0.1487*** (0.038)	-0.1287*** (0.043)	-0.1289*** (0.043)	-0.1284*** (0.042)	-0.1276*** (0.043)
popg [t-1]	0.3491 (0.373)	0.4513 (0.345)	0.2579 (0.515)	0.2580 (0.515)	0.3458 (0.550)	0.3517 (0.521)
Const.	0.2032** (0.079)	0.1734** (0.068)	0.3313** (0.157)	0.3324** (0.158)	0.3564** (0.178)	0.3091** (0.137)
Observations	312	312	312	312	312	312
Instruments	10	10	10	10	10	10
Arellano-Bond test for AR (2) in first difference (p-value)	0.1799	0.1812	0.2723	0.2717	0.2976	0.2551
Hansen test of joint validity of instruments (p-value) hansenp	0.6361	0.6430	0.6969	0.6947	0.6795	0.5375

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[TFN1] Source: Prepared by the authors.

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