The Effect on Real Exchange Rate Fluctuation on Total Factor Productivity Growth, Considering Financial Development

Investigations of the effects of exchange rate fluctuations on productivity by economists show the importance of this debate in economic literature. There are different, and sometimes, opposite views about this matter. In the present study using panel data method, the relationships between exchange rate fluctuations and total factor productivity growth in the period of 1994 – 2015 for 33 selected countries have been investigated. The results show that the real exchange rate fluctuation has determinate effects on total factor productivity growth. In developing countries, this relationship is strong. Also, it was determined that the relationship between real exchange fluctuation and total factor productivity growth depends on level of financial development. In high level of financial development, real exchange rate fluctuation does not have any effects on factor productivity growth. Nevertheless, in the countries which are at low level of financial development, real exchange fluctuation has negative effect on factor productivity growth.